Leases Flashcards
Which accounting standard covers the accounting for leases?
What is the benefit of a lease?
What are the 3 components mentioned in the descriptions of a lease, lessor and lessee?
IFRS16
Outflow is spread over a period of time
Right to use, period of time, exchange of consideration
What 3 things need to be id studied in order to identify a lease?
What qualifies as a right to use?
If this can happen then lessee doesn’t have right of use?
Does lease have to be for whole of ownership?
What can period of time be measured in?
Right to use, identify asset, period of time
Direct use and obtain economic benefit
Replacement of asset during lease term
No can be for portion
Units produced or actual period of time
What should the lesee recognise at the start of the lease?
What should be derecognised at start of lease? And set up?
What two things need to be calculated to work out the lease term?
Lease liability and right of use
Asset and receivable
Periods covered by option to extend lease if reasonably certain to
Periods covered by option to terminate lease if reasonable certain to
What two ways can a lease be classified and what is the main distinguishing difference?
Which does what in regards to this?
Finance or Operating
Transfer of risk and reward
Finance has transfer operating does not
What are the identifiers of a finance lease?(5)
POTUS
PV=FV of asset at commencement
Option to purchase asset for less than fv
Transfer of ownership at end of lease
Underlying assets life mostly covered by lease
Specialised nature would have to be modified to be used by someone else
Finance lease
What should the lessor do first? (3)
How does this look in double entry form?
What is included in the working for the net investment in lease?
De recognise cv of asset
Recognise receivable at net investment in lease
Recognise any difference in Por L
Dr Net investment in lease
Cr PPE
Dr/Cr profit or loss
PV of lease payments not collected at commencement date
Plus PV of unguaranteed residual value occurring to the lessor
What other ways might the discount rate be called in the question?
Internal rate or return or interest rate
What are 5 lease payments that might not be received by the commencement date?
Fixed payments
Variable payments depending on lease/rate
Residual guarantees provided by lessor, party related to lessee or 3rd party capable of discharging obligations
Exercise of purchase option
Payment of penalties for terminating lease
How do you calculate receivables - explain
Yearly payment amounts
Guaranteed and unguaranteed income at end of lease
Times all by discount factor
Add the answers together to get total
What counts as a direct cost?
What is the double entry?
Any costs directly related to the lease
Dr Net investment in lease
Cr Cash
Subsequent measurement
How is finance I come measured?
What does this measurement show?
Double entry treatment for increase in finance income?
Double entry treatment for decrease in instalments received?
Over time
Constant periodic rate of return in lessors investment
Dr Net investment in lease Cr Finance income
Dr Cash Cr Net inv in lease
How do you work out the calculation in arrears?
What’s the difference with in advance?
PV of lease payments at commencement
+ finance income (%xbalance)
-net in lease
The first net inv in lease is included in the PV of lease payments
Operating lease recognition
Asset?
Lease payments?
Initial direct costs?
Double entry treatment?
Continue to recognise
Straight line or systematic
Added to cv of asset - ias16 or ias38 intangible assets applies to depreciation/amortisation
Dr Cash
Cr Rental
Dr Accrued Income
What do you do if they get some months paid of a lease discounted?
Add the discounted amount to the other yearly amounts and share by the total number of years = yearly amount
