Leases Flashcards
What are the criteria for identifying a lease?
- right to control
obtain all economic benefits from the use of the asset within the parameters of the lease. ]
direct use of asset
- identified asset
must be specified in the contract
may be part of an asset
if supplier has right to use the asset - not a lease
- period of time
such as years
the amount of use based upon production such as number of units produced
How do you measure the right of use Asset?
Initial measurement of LL
+
payments made before or at commencement less incentives received
+
initial direct costs
+
costs of dismantling
How do you depreciate a ROUA?
debit depreciation SPL
credit acc depn SOFP
What period should a ROUA be depreciated over?
Either:
- useful life: if transfer of ownership is an option
- if transfer of ownership is not an option then the depreciated over the shorter of lease and useful life of the asset
How is the lease liability measured?
measured at the PVFLP: including expected payments and discounted at the rate implicit
if not given then use borrowing rate implicit.
What is the working for a Lease liability in arreas?
Closing liability = opening + interest - payment
what is the working for a lease liability made in advance?
The initial payment made in advance is not included in the calculation of the Lease Liability but added to the ROUA value.
How do you calculate the PVFLP if not given?
- take the annual payments made for the lease over its useful life, say £10,000
- Discount it over each year using the formula 1/ (1+r)^n
e.g say rate 10%
x1 10,000 x 1/1.1^1
x2 10,000 x 1/1.1^2
x3 10,000 x 1.1^3
- Take the total of all of these payments which will be the outstanding balance which will be put into bal b/f
4.
dr asset
cr liability
How do you split your liability into current and non current liabilities?
- Find value of PVFLP and then do your working for x1. The number carried forward will be your total liability.
- work out your total liability for x2 using this value.
the total liability in x2 will be your Non-current liability in X1.
- for payments in advance do not add interest to the bal remaining after payment.
How do you disclose leases?
IFRS 16. must present ROUA and LL
can disclose ROUA as its own thing in the sofp or as a seperate class of PPE.
Which leases are exempt?
- Short term leases: these are leases of 12 months or less. A lease that contains purchase options cannot be a short term lease.
- low-value leases. underlying asset has a low value when new (tablet or phone). can only be low value if:
lessee can benefit from using underlying asset
underlying asset is not highly dependant on or interrelated with other assets.
What is the accounting treatment for recognition expempts?
lease payments are recognised as an expense in profit or loss on a straight line basis over the lease term unless some other systematic basis is representative of time pattern of user benefit.
