LEASES Flashcards
Lease exists if there is
Identified asset, Right to control, to obtain, to direct
TRUE OR FALSE
Rent Income always = Rent expense
True
Explain lease bonus
example of prepaid expense of lessee. common in commercial space
Actual lease payment higher than SL amort results to
prepaid rent as to LESSEE
unearned rent to Lessor
When the lease is qualified for exception and is recognized as an operating lease, the lessee shall recognize rent expense during the period:
I. Any contingent rent payments (payable) during the period based on rental agreement.
II. Straight-line amortization of total rental payments over the useful life of the asset
III. Straight-line amortization of total rental payments over the lease term
IV. Amortization of any lease bonus over the useful life of the asset
V. Amortization of any lease bonus over the lease term
a. II,IV&Vonly b. II,IV&Vonly c. I,IV&Vonly d. II,III&Vonly
2, 4 is wrong, lease term not useful life
- Which statement characterizes an operating lease?
a. Depreciation and interest expense are recorded by the lessee
b. Depreciation and rental revenue are recorded by the lessor
c. Lease rental liability is recorded in the books of the lessee
d. Title of the underlying asset is transferred from the lessor to the lessee
A. FINANCE LEASE
B
The lessee may apply the operating lease model under what condition?
a. Short-term lease only
b. Low value lease only
c. Short-term lease or low value lease and the company apply the exception
d. Under all circumstances
D. Disclose in FS
In the POV of SEE:
GR is
Finance Lease
See will record initially
ROUA
LL
What is lease liability? It includes?
PV of Minimum Lease Payts;
Fixed Rentals
Variable rentals
Purchase Option, reasonably certain- go to the lessee
Guaranteed RV- revert back to lessor hence, deducted if computing depreciation
Penalties
What is the hierarchy of rate to be used in PV of MLP? [II]
Implicit Rate- target return of SOR
Incremental Borrowing Rate- similar asset; bank interest rate
Executory costs is not included in lease liability
True
Executory Costs is paid by lessor
False, it is paid by lessee to third person.
example: Taxes
hence, expensed outright
ROUA is measured at
COST ( PP+ TC)
Initial Computation of ROUA includes [PLIR)
- PV OF MLP (LL)
- Lease Bonus [SEE—> SOR] — Lease incentives [SOR—> SEE] ex. reimbursements
- Initial Direct costs ex. brokers fee, agents commission, finders fee
- Restoration Costs (written) ex. leasehold improvements
Subsequent Measurement of ROUA
Cost
-Acc dep
-Acc impt
CA
