Leases (F6:M1-2) Flashcards
for lessee to account for a lease as a finance lease (sales-type for lessor) under GAAP, the terms of the lease must meet at least one of the finance lease criteria. what are the criteria? (5)
ownership transfers at end of lease
written purchase option lessee is reasonably certain to exercise
PV of min lease payments (including guaranteed residual value) = 90% of FV of leased property
*PV of payments / FV of leased property
lease term = 75% of asset useful life
asset is specialized, meaning it has no alternative use to lessor
lessee
party that pays for use of leased property
lessor
party that received payment for leased property
how is financing liability calculated?
*sale-leaseback and qualifies as a sale
sale price - FV of asset
under IFRS, which types of leases do lessees record? How about lessors?
lessees: finance
lessors: finance and operating
from the lessor’s perspective, when should a lease be considered a “direct financing lease”?
none of the criteria are met to classify as a sales-type lease
PV of sum of lease payments (not including guaranteed residual value from lessee) + 3rd party guaranteed residual value = 90% of leased property FV
collection of payments is probable
*both must be met, if not, lease is considered operating
how is a lease amortization table set up (operating)?
Date / Lease Exp (pmt) / Int / Reduction / CV of ROU / LL
int = implicit rate x CV of ROU
Reduction reduces LL and ROU asset CV
when accounting for a finance lease, how should lessee calculate deprecation exp? What if there is a written purchase option or lessee takes ownership of asset?
PV of min lease payments / lease term
PV of min lease payments / useful life of asset
over what life should leasehold improvements be amortized?
over life of improvements or remaining life of lease, whichever is shorter.
under GAAP, how are initial direct costs accounted for when recording a finance lease?
they are added to the leased asset at lease inception
in a sales-type (finance) lease, how is the dealer’s (lessor’s) profit calculated on day lease begins?
FV of leased asset - CV of leased asset
when calculating a lessee’s lease obligation for a finance lease, should a residual value that is guaranteed by a third party be included in the calculation?
NO
from the lessor’s perspective, how is interest revenue calculated for a direct-financing lease?
total cash flows - PV of cash flows
how is a lease amortization table set up (finance)?
Date / Lease Exp (pmt) / Int / Am / CV of ROU / LL
Int = implicit rate x CV of ROU
Am = straight-line
current LL = prior LL - (lease exp - int exp)
current CV of ROU = prior CV of ROU - Am
