Leases Flashcards
Who are the lessor and lessee?
The lessor is the owner and supplier of asset
The lessee has the right to use the asset
What is a lease?
A contract that conveys the right to use an asset for a period of time, in exchange for consideration
What is an underlying asset?
An asset that is the subject of a lease, for which the right to use that asset has been provided by a lessor to a lessee
What is a right-of-use asset?
Asset represents lessee’s right to use underlying asset for lease term
What is the double entry for the initial measurement of the right-of use asset?
Dr Right of use asset (PVFLP+deposit+dismantling costs+fees)
Cr lease liability (PVFLP)
Cr cash (deposit + fees)
Cr provisions (dismantling costs)
What is the double entry for depreciation of a right to use asset and how should it be depreciated?
Dr depreciation expense
Cr accumulated depn
Depreciate over shorter of lease term or asset useful life
What is the double entry for making the payment of a lease?
Dr lease liability
Cr cash
What is the double entry for the finance charge of a lease?
Dr finance cost
Cr lease liability
How do we calculate a lease liability in arrears?
Set up a table with the headings:
year, balance b/f, interest @%, payment, balance c/f
Do this for 2 years
What do we need to do to the total lease liability in arrears (1st year c/f)?
Split into current and non-current liabilities - NCL is 2nd yr c/f, CL is balancing figure
How do we calculate a lease liability in advance?
Set up a table with the headings:
Year, balance b/f, payment, balance remaining, interest @%, balance c/f
Do this only for 1 year
What do we need to do to the total lease liability in advance (1st year c/f)?
Split into current and non-current liabilities - CL is 1st yr c/f, NCL is balancing figure
When are optional exemptions from standard accounting allowed?
Short term lease - under 12 months and no option to buy at end
Leases of low value assets - laptops, phones
Expensed on straight line basis
What is a sale and leaseback transaction?
Involves the sale of an asset and leasing back of same asset
What are the steps for a sale and leaseback transaction?
1) Calculate proportion retained: PVFLP/Fair value of asset
2) Calculate carrying amount retained: original carrying amount x % retained
3) Calculate gain on disposal of transfer: gain on disposal x balancing %
What is the double entry for a sale and transfer agreement?
Dr cash (sold for)
Dr right of use asset (carrying amount of roua)
Cr Lease liability (PVFLP)
Cr PPE (carrying amount)
Cr Gain on disposal (gain on disposal %)
What happens if the transfer is not a sale?
Lessee continues to recognise transferred asset and proceeds treated as financial liability
What is the UK GAAP comparison on leases?
IFRS 16 - no distinction between accounting treatments apart form short term
FRS102 - finance leases transfer risk and reward of ownership, operating leases do not - expense on straight line basis
