SBR Stuff Flashcards
What are the two types of lease and buy back
If the transfer of the assets is not a sale for example if the useful life of the assets is 10 years and we lease it back for 10 years therefore we retain the risks and rewards of the assets
If the transfer of the asset is a sale for example if the useful life is 10 years but we lease back for two years.
How to accounts for a lease and buy back if it is not a sale in the perspective of a seller and buyer
Seller (Lessee)
We will continue to recognise the assets. And in regards to the cash we actually receive for the assets we will recognise it as a financial liability. As in substance it is like a loan against the asset. Imagine we need cash now, this is a good way
Buyer (lessor)
How to accounts for a lease and buy back if it is a sale in the perspective of a seller and buyer
Seller (lessee)
As we have sold -
1. De recognise asset
2. Replace with right to use asset
3 . Recognise a lease liability (PV of lease payments)
4. Recognise cash
5. Balance figure goes to P&l
How to recognise income when the obligation is yet to be met
As a liability (deferred income)
What is management bias
It is when there’s a chance that an estimate or a figure in the financial statements is not accurate based on what’s management want to happen. For example if the company wants to take out a loan revenue may be overstated to supports the application
What three things should be included when discussing risk
The accounting treatment
The risk itself
Example within the scenario to link together
Investment property
Investment property is property held to earn rentals (operating lease) or for capital appreciation or both
Initial measurement
Cost plus directly attributable costs
Subsequent measurement
Either:
FV at each reporting date with gains and losses going through P&l. Properties are not depreciated
Or
Cost model and assets are depreciated
What is a provision
Under IAS 37 provisions contingent liabilities and assets a provision is
Present obligation as a result of a past events - legal or constructive
Probable transfer
Measure outcome reliably
When can a provision be recognised
Historically companies used to put provisions in to manipulate profits. For example if profits were higher than expected and they wanted to move some into the next period they may put a redundancy provision in and then cancel it later. Since IAS 37 was introduced this is no longer allowed and a provision can only be recognised if
- Detailed formal plan
- Plan has been announced
Difference between provision and contingent liability
If it is probable that I will lose a court case I will put in a provision.
If it’s possible I will lose a court case then I will disclose a contingent liability to the notes
How to recognise a contingent assets
For example if we were suing somebody.
If virtually certain recognising assets
If probable disclose a contingent assets in the notes (remember for liability probable is a provision)
If possible we ignore (remember for liability possible was A contingent liability disclosure in the notes)
Is there a lease ?
- Needs to be a contract but what does that contract give right to ?
If you “control the use of an asset” then there is a lease and “substantially all of the economic benefit”
If “lessor” can substitute asset the it’s not a lease
How to account for inventory that you don’t control
For example if you bought inventory off a supplier but they can we call it at any time then you do not own the inventory. In fact as they can request return at any point it should be considered as held on consignment. Therefore there should not be a recognition of inventory in the financial statements but instead this company should recognise a receivable as they may receive payments again if the supplier wants the inventory back
