Leases Flashcards
ASPE 3065
Definition of Capital lease
is a lease that, from the point of view of the lessee, transfers substantially all the benefits and risks incident to ownership of property to the lessee.
ASPE 3065
Sales-type lease
is a lease that, from the point of view of the lessor, transfers substantially all the benefits and risks incident to ownership of property to the lessee and, at the inception of the lease, the fair value of the leased property is greater or less than its carrying amount, thus giving rise to a profit or loss to the lessor (usually a manufacturer or dealer).
ASPE 3065
Direct financing lease
is a lease that, from the point of view of the lessor, transfers substantially all the benefits and risks incident to ownership of property to the lessee and, at the inception of the lease, the fair value of leased property is the same as its carrying amount to the lessor (usually not a manufacturer or dealer). A lease is not precluded from being classified as a direct financing lease after it is renewed or extended even though the carrying amount of the property at the end of the original lease term is different from its fair value at that date.
ASPE 3065
Operating lease
is a lease in which the lessor does not transfer substantially all the benefits and risks incident to ownership of property.
ASPE 3065
Bargain purchase option
is a provision allowing the lessee, at its option, to purchase the leased property for a price that is sufficiently lower than the expected fair value of the property, at the date the option becomes exercisable, that exercise of the option appears, at the inception of the lease, to be reasonably assured.
ASPE 3065
Bargain renewal option
is a provision allowing the lessee, at its option, to renew the lease for a rental that is sufficiently lower than the expected fair rental of the property, at the date the option becomes exercisable, that exercise of the option appears, at the inception of the lease, to be reasonably assured. “Fair rental” means the going rate for rental of equivalent property under similar terms and conditions.
ASPE 3065
Contingent rental
is a rental based on a factor other than the passage of time (for example, percentage of sales, amount of usage, prime interest rate, price indices).
ASPE 3065
Economic life of the leased property
is the estimated remaining period during which the property is expected to be economically usable by one or more users, with normal repairs and maintenance, for the purpose for which it was intended at the inception of the lease and without limitation by the lease term.
ASPE 3065
Executory costs
are costs related to the operation of the leased property (for example, insurance, maintenance cost and property taxes).
ASPE 3065
Fair value
is the amount of the consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act.
(i) When the lessor is a manufacturer or dealer, the fair value of the property at the inception of the lease will usually be its normal selling price, reflecting any volume or trade discounts that may be applicable. However, the determination of fair value would be made in light of market conditions prevailing at the time, which may indicate that the fair value of the property is less than the normal selling price.
(ii) When the lessor is not a manufacturer or dealer, the fair value of the property at the inception of the lease will usually be its cost to the lessor, reflecting any volume or trade discounts that may be applicable. However, when there has been a lapse of time between the date of acquisition of the property by the lessor and the inception of the lease, the determination of fair value would be made in light of market conditions prevailing at the inception of the lease, which may indicate that the fair value of the property is greater or less than its cost or carrying value.
ASPE 3065
Inception of the lease
is the earlier of the date of the lease agreement and the date of a commitment that is signed by the parties to the lease transaction and includes the principal terms of the lease (this is the effective date used for classification of the lease).
ASPE 3065
Initial direct costs
are those costs incurred by the lessor that are directly associated with negotiating and executing a specific leasing transaction. Such costs include commissions, legal fees and costs of preparing and processing documents for new leases. Such costs do not include supervisory and administrative costs, promotion and lease design costs intended for recurring use, costs incurred in collection activities and provisions for uncollectable rentals.
ASPE 3065
Interest rate implicit in the lease
is the discount rate that, at the inception of the lease, causes the aggregate present value of:
(i) the minimum lease payments, from the standpoint of the lessor, excluding that portion of the payments representing executory costs to be paid by the lessor and any profit on such costs; and
(ii) the unguaranteed residual value accruing to the benefit of the lessor;
to be equal to the fair value of the leased property to the lessor at the inception of the lease.
ASPE 3065
Lease
is the conveyance, by a lessor to a lessee, of the right to use a tangible asset, usually for a specified period of time in return for rent.
ASPE 3065
Lease inducements
are incentives for a lessee to sign a lease (for example, an up-front cash payment to the lessee, an initial rent-free period or reduced rent payments in early periods, the reimbursement of costs of the lessee such as moving costs or leasehold improvements, or the assumption by the lessor of the lessee’s pre-existing lease).
