Leases Flashcards
Lessor
Operating
Non-operating- Sales type lease, Direct Finance lease
Lessee Point
Operating
Capital
Capital Lease Terms
TT-Title Transfer
BPO-Bargain Purchase Option
75%- If we are going to lease more than 75% of its useful life
90%-If we are paying more than 90% of present value of MLP
Any one of the above four
How to depreciate
In TT and BPO we have to depreciate over its useful life
In the case of other two we have to depreciate it over useful life or legal life whichever is shorter
When not to use Criteria 3 and 4
when we are in the last 25% category. The only way we can use then is first two criteria
What is a non- cancellable lease term
Minimum period of lease term which has to be in effect
What rate does the lessee use
FMV PV of the minimum lease payments Periodic Payments BPO as a lump sum Guaranteed residual value as a lump sum
To PV the payments use
Incremental borrowing tate
Lessors implicit rate
What happens Every year to Interest expense and lease liability
Every year interest expense goes down lease liablity goes up
Non-operating leases lessor stand point
sales type lease, finance type lease
When land and building both are involved
when the land value >25% Land and building are considered separately
If the fair value of the land is
Sale back leases
If the PV of the rental payments is > of fair value of
property at inception = this implies that the seller lessee retains substantially all of the rights to sue the property so defer all gains and offset against depreciation expense
If the lease payment is less than 10% then the lease expenses may be one of the four
executory costs
taxes, insurance and maintenance
Values to be taken in the question
Take only the PMLP values only and depreciate using those values only
IFRS
Operating lease or finance lease
