ME2 Flashcards
Leases : OWNES = finance capital lease
Ownership transfers to the lessee at end of lease term
Written purchase option which lessee is reasonably certain to exercise
Net present value equals or exceed substantially all of the fair value of asset
Economic life (major part) of the underlying asset within lease term
Specialized asset such that it will not have an expected, alternative use to lessor
Operating lease
NO to OWNES, option not to capitalize if short term
Quantitative Approach leases
N criteria
E criteria
N criteria - 90% or more of the FV of the underlying asset would be “substantial”
E criteria - “major part” of the remaining economic life of the asset would reasonably be considered 75% or more
Lessor types of leases
Sales type - at least one of OWNES criteria is met
Direct financing - none of the OWNES criteria is met, but both of the PC criteria are met
Operating lease - none of the OWNES criteria are met, and either one or no PC criteria are met
Lessee lease types
Finance lease - one of OWNES criteria met
Operating - NONE of OWNES criteria met
Investing activities - stmt of cash flows
Making loans to other entities.
Purchasing (cash outflow) or disposing of (cash inflow) trading securities (if classified as non-current), AFS securities, and HTM investment securities of other entities (debt or equity).
Acquiring (cash outflow) or disposing of (cash inflow) property, plant, and equipment (productive assets); and
Acquiring another entity under the acquisition method using cash (cash outflow). The payment for the acquisition is shown net if the cash acquired.
Supplemental disclosures for statement of cash flows indirect method
Cash paid for net interest payments + income taxes
Required disclosures of a statement of cash flows under direct method :
- Major classes of gross cash receipts and gross cash payments
- Amount of income taxes paid
- A reconciliation of net income to net cash flow from operations
