Leases Flashcards
Under what IAS is a lease
IAS 17
What is a lease?
A l war is an agreement whereby the lessor conveys to the lessee in return for payment the right to use an asset for an agreed period of time
What does faithful representation mean?
Financial information represents the substance of an economic phenomenon rather than merely representing its legal form
What is a finance lease
A lease that transfers substantially all the risks and rewards incidental to owenership
Legal title may or may not be transferred
What is an operating lease
Not a finance lease
What are the indicators of a finance lease
Ownership is transferred at the end of the lease
Lesser can buy the asset for an amount lower than the expected value of the asset and the end of the lease
The lease covers the majority of useful life
Leased asset is specialised
Total value of lease payments are substantially equal to the fair value
How should a finance lease be accounted for?
Recognise asset and lease liability in the statement of financial position
Measure at the lower of fair value and present value of minimum lease payments
Subsequent measurement
Payments are apportioned between the finance charge and the reduction of the outstanding liability
How should an operating lease be accounted for?
Recognised as and expense on a straight line basis for the lease term
How should an operating lease with different payment amounts be accounted for
Add up all lease payments
Divide by the length of the lease
Recognise the difference between expense and cash as an accrual
What are the proposed changes to leases
Operating leases are off the balance sheet yet they meet the definition of a liability
Said recognise an asset and liability for all leases measured at the present value of minimum lease payments
Recognise depreciation
Recognise interest on the liability
