Leases

Question 1

How to ROU Asset

Answer 1

ROU asset created by the PV of the lease payments (The Liability) PLUS the direct costs

Dr ROU Asset, Cr Lease Liability
Dr ROU Asset, Cr Bank - Direct Cost

Question 1

Recognising Leases

Answer 1

Recognise two parts:
ROU asset
Lease Liability

Question 2

ROU Asset

Answer 2

Liability B/F, Interest is on the B/F amount, Payment stays flat as the earlier

Payment double entry to dial down the liability: Dr Lease Liability, Cr Bank
Interest: Dr Finance Charge, Cr Lease Liability
Depreciation: Based on ROU asset value: Dr Depn, Cr ROU Asset

Question 3

Payments in Advance

Answer 3

If Payment is in advance, create a new subtotal, and interest is calculated on that value

Question 4

Sale and Leaseback: Transfer not a sale

Answer 4

Treat proceeds as a loan:

Dr Bank Proceeds
Cr Loan Proceeds

Depreciate the carrying value and send to P&L e.g. Cr Asset, Dr Depn
Also calculate interest on the proceeds by rate of interest, Dr Finance cost, Cr Bank

Question 5

Sale and Leaseback: Transfer is a sale

Answer 5

Dr Bank value of FV sale
Dr ROU Asset: (PV of lease liability/sale amount)*Carrying amount
Cr PPE: Carrying amount
Cr Lease liability: PV of lease
Cr P&L: (balancing figure)

Question 6

Short term/Low value lease

Answer 6

12 months or under. Apportion lease expense throughout the year. Accrue remainder if any

Question 7

NCL vs CL on lease

Answer 7

On the C/B of the lease, Take payment off for next year as Current Liability, the remainder is Non-Current Liability

Question 8

If Lease Transfer is not a sale (PV of lease not given)

Answer 8

It will state if the title/deeds are passed over, if not assume no.

Take the proceeds and get Interest per annum
Take the carrying value to calculate depreciation

Question 9

Sale and Leaseback: Easier method

Answer 9

Gain*((FV Sale - Carrying value)/FV sale)