Operating/Rental Leases Flashcards
types
operating and capital (financing lease)
US
Operating: no ownership, return it in the end, rental
Capital: keep it in the end; or you should treat is as if you’re owning it
Dr. Asset
Cr. Liab
Lessor (rentor)
(gaap/ifrs) rental: operating
sale(sub): (gaap) a) sales type if making a profit on sale and charging you interest b) direct financing lease -acting like a bank
(ifrs) financaing
Lessee
(gaap/ifrs) rental: operating
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sale(sub):
gaap
capital
financing lease
(ifrs) financaing
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example car
lease it
operating? so just paying for it over time and have to return it in the end?
or financing
so paying for it over time so you can own it in the end
Operating lease
rental agreements
no risk or benefit of ownership
lessee accounting - renter accounting
dr. rent exp
cr. cash/rent payable
usually SL unless they specify
lease bonus is a prepayment
example: commission paid to real estate agent; rent kickers
prepayment for future expense (so like prepaid rent) asset as deferred charge and then amortized using SL over life of the lease
Leasehold improvements
even though you are renting, permanently fixed to the property adn reverts back to the landlord at the end
usually stuff not moveable from the premises by the tenant (painting on the wall not, but air ducts yes)
capitalize: add to the PPE section or the intangibles section
Depreciate it -> Lesser of lease life or asset/improvement life
THEME FOR THIS MODULE
Lesser of the two amounts whenever making choice
rent kicker
premium rent paid for specific events = prepaid and then period expense
refundable security deposit
non refundable-> prepaid rent expense or deposit expense and period expense as eanred
reported as an asset or receivable until refunded by the landlord
hint
dont like landlord he is less of a a person so he is a lessor
fee or reduced rent consideration
free rental months or reduced rent at the beginning of the period
total rent period for each term and straight line it
example
rent expense same every period
if you are paying rent for 5 years or 60 months for $1000/month and first six months are free then you do
1) Total rent expense over 60 months = (61000) = 60,000 - the first six months of rent that is free so 61000= 54,000/60 = $900/month
for first six months when you are not paying anything
dr. rent expense 900
cr. rent payable 900
rem after 6 months
dr. rent expense 600
dr. rent payable 100
cr. cash 1000
because actually paying cash 1000
