Leases

Question 1

What are the lease criteria? (5 items)

Answer 1

Transfer of ownership

Option to purchase

Years in Lease term equal to or greater than 75% of years in useful life

PV of lease payments are equal to or greater than 90% of FMV

Asset is specialized with no alternative use to lessor.

Question 2

How is lease interest expense calculated?

Answer 2

Carrying amount of the lease liability at the beginning of the period X the implicit rate.

Question 3

How are operating leases that don’t meet finance lease criteria accounted for?

Answer 3

For operating leases that don’t meet the criteria of a finance lease, the commitment is only disclosed in the statement notes.

Question 4

Fun fact Loss contingencies

Answer 4

If no amount within a range of possible losses is a better estimate than the other, accrue the MINIMUM

Question 5

How is an Operating lease amortized?

Answer 5

Over the lease term

Question 6

How should operating and finance leases be presented on the balance sheet?

Answer 6

Separately from each other and separately from other assets and liabilities.

Question 7

How are cash payments presented on the statement of cashflows for operating and finance leases?

Answer 7

Operating: principal and interest are cashflows from operating activities.

Finance: repayment of principal is a finance activity & payment of interest is an operating activity

Question 8

Fun fact

Answer 8

Given no renewal option the amortization period is 20 years, the shorter of the expected useful life or the remaining lease term at date of completion.