Leases Flashcards
What happens when an operating lease ends?
Either renew or return to owner.
What is a finance lease?
A lease with either an ownership transfer or an option to purchase at a bargain price.
What does a finance lease give the company?
risks and benefits of ownership
What are the 2 groups of accounting treatment for leases?
IFRS OL IFRS FL GAAP FL
GAAP OL
What is the part that both accounting treatments for leases have in common?
When the lease gets signed.
What happens when the lease gets signed?
BS: Lease asset and lease liability up by PV of future lease payment
For IFRS OL IFRS GAAP FL what happens in subsequent years?
company pretends it has issued debt to purchase asset and now owns it
IFRS OL IFRS GAAP FL: What is the interest expense formula
DR x lease liability
IFRS OL IFRS GAAP FL: What is the lease depreciation
initial lease asset / lease term
IFRS OL IFRS GAAP FL: What is the formula for lease principal repayment?
cash lease expense - annual interest expense
GAAP OL: What is lease expense split into?
depreciation and lease principal repayment
GAAP OL: What is the formula for depreciation?
cash lease expense - interest expense
GAAP OL: For lease principal repayment, what happens if cash lease expense is constant?
lease principal repayment = lease depreciation
GAAP OL: For lease principal repayment, what happens if cash lease expense is not constant?
lease principal repayment = straight line rental expense on IS - interest expense
GAAP OL: What happens on the BS if there is constant annual payment?
LA and LL decrease by same amount each year.
