Leases Pensions, Taxes

Question 1

What is a lease

Answer 1

Private contract between the owner of an asset and party desiring to use that asset

Question 2

What are terms of a lease

Answer 2

1. Grants lessee unrestricted right to use asset during lease
2. Lessee agrees to maintain asset and make periodic payments to lessor
3. Title of asset remains with lessor unless lessee negotiates right to purchase

Question 3

Why do people use leases

Answer 3

Leases often require less equity investment by lessee

Question 4

Financing Lease criteria

Answer 4

1. Transfer of ownershiip at the end of the term
2. Purchase option for asset
3. lease term is for major part of remaining economic life
4. specialized asset has no alternative use at end of term
5. PV of sum of lease payments +residual value exceeds all fair value of asset

Question 5

What lease standard changed?

Answer 5

IAS17,ASC840 changed to IFRS16, ASC842
Before operating lease liability is not required to be recognized on balance sheet so it could be concealed.

Question 6

What is the difference between IFRS 16 and ASC 842

Answer 6

IFRS: there is a single lease model for all of them and amortization and interest is recognized
ASC: Separate finance (split expense) `and operating leases (single expense)