Unit 3 Flashcards
IFRS Leases
Chapt
IFRS 16
When does a lease occur
It occurs when it allows the other party a controlled use of the asset over a period of time in exchange for a consideration, usually cash.
How do you identify a lease from a service
- Identification of the asset in the contract (no substitute)
- Exclusive right to the economic benefit of use of the asset
- Right of direct use or control of the asset or predetermined in the contract
What is recognized in the books at initial measurement
IFRS 16 :
At the inception of a contract, the asset (ROA) shall be recognized in the lessee’s books with a corresponding lease obligation (Lease Liability)
The initial measurement cost of ROA includes?
PV of initial lease liability
+ Lease payment made on/before commencement day
- Less lease incentives
+ Any lessee initial direct cost
+ PV of dismantling cost
What are the components of lease liability calculations under IFRS
- Fixed lease payment - Yes
- Variable payment - Yes but at index or rate in effect
3 BPO - Yes - Guaranteed residual value - Yes. Use expected payout if lower
- Unguaranteed residual value - No
- Non-lease component cost - Could elect to. ASPE remove
- Termination penalties - Yes If in agreement
* If lessee’s expected payout under the guarantee is less than the guara
How is ROA subsequently measured
They can be measured at
- Cost
- Revaluation method for PPE or
- Fair value for Investment Property
What are the elements in the cost model?
Original cost
LESS: Acc dep
LESS: Acc impairment loss
Adjust for remeasurement of lease liability
*If ownership is transfered (there’s BPO), depreciate over useful life.
* If NO ownership transfer, depreciate over the shorter of lease term or useful life
Formula for calculating depreciation
- Where title transfers (there is BPO)
(ROU-Residual value) / Useful life - Where title does not transfer (No BPO)
ROU / (shorter of lease term & useful life)
What are the terms of depreciation of ROA
- If title will transfer at end of lease term (or theres BPO)
- Depreciate over the useful life
- Deduct residual value to calculate depreciation.
- If title will NOT transfer at end of lease term
- Depreciate over lower of lease term/useful life
- Do NOT use residual value to calculate depreciation
- For PV of ROU/Lease liability, use expected cash pay out or residual value instead of Guaranteed residual value if theres no BPO
What are the components of lease liability calculations under IFRS
- Fixed lease payment - Yes
- Variable payment - Yes (if based on index or rate in effect)
3 BPO - Yes - Guaranteed residual value - Yes
- Unguaranteed residual value - No
- Non-lease component cost - Could elect to. ASPE remove
- Termination penalties - Yes (if stated in the terms)
- If lessee’s expected payout and guaranteed residual are mentioned, use the expected payout. This is not BPO.
Content of a lease PV calculation IFRS
RATE- Implicit rate if known
NPER - No of periods
PMT - Fixed pymt + variable (@index) + non-lease component(if elected)
FV - BPO or guaranteed residual, Termination penalties (in agreement)
TYPE - 1 BGN , 2 END
*Where there is both BPO and guaranteed residual, use BPO
Derecognition - when asset is returned
- When there is no residual value
Final pymnt is o
Dr Accum dep
Cr ROU - When theres residual value
Amount to pay = Residual value - FV at end point
Dr Lease liability
Cr Gain/Loss on derecogntion
Cr Cash
Derecogntion - title transfer - no BPO
No gain or loss but transfer at NBV of ROU
Dr Asset
Dr Accum dep
Cr ROU
Derecogntion - Title transfer - theres BPO & is paid
Dr lease liability
Cr cash
Dr Asset
Dr Accum dep
Cr ROU
Derecogntion - Title transfer - theres BPO NOT paid
Lease liability is adjusted to zero and diff goes to gain or loss
Dr Lease liability
Cr Gain on lease derecognition
Dr Loss on Asset recognition
Dr Accum dep
Cr ROA
Leases - What are the differences between IFRS and ASPE
IFRS
IFRS
* All leases are capitalized ROU asset & Lease liability are recognized. Except for short term and low value leases
* Non component costs can be elected to be included in lease
* Leased asset can be recognized at amount higher than FV
* PV discount rate is implicit rate (if known)
* ROU - Amount to be paid out is used, not residual guarantee in lease liability
* if ownership is not transferred, depreciate over lower of useful life and lease term
Leases - What are the differences between IFRS and ASPE
ASPE
ASPE
* Lease can be Capital or Operating if at least one of the criteria is met
* Non component costs are exempted from lease payment calculation
* PV discount rate is lower of implicit and IBR
* The leased asset cannot be recognized at an amount higher than its fair value. It should be the lower of its FV and PVMLP (ASPE3065.16)
* Asset under lease - Guranteed residual is included in lease liability
* Amortize over useful life
What are the criteria to classify a capital lease under ASPE?
****By **any **of these criteria
- Transfer of ownership
Reasonable assurance that ownership will transfer after the lease term. That could be by transfer of title or existence of BOP
- Economic benefits transfer
(>75% of useful life) . The lease term is 75% or greater of the asset’s useful life.
- **Recovery of investment ** (>90% of PV MLP) . The PV of the minimum lease payments is 90% or greater of the fair value of the asset value
What are the calculations for a Sale and Lease Back?
- Buyer / Lessor Proportionate claim
(FV- PV of lease payment) / FV - Seller-lesse’s proportionate claim
PV of lease payment / FV - ROU asset initially recognized
(PV of lease payments/ FV) x NBV of asset given up - Gain on sale recognized = Buyer’s portion of the use of asset
Gain on sale = Buyer’s proportion x (FV- NBV)
ASPE Note
If implicit rate is lower than IBR, then initial Lease liability = Asset value = FV
Non-Monetary Transactions
Chapt 32
ASPE 3831
NMTs are measured at the FV of the more reliable of the asset given up or asset received except in what circumstance
Any of:
1. The transaction lacks commercial substance
2. when it is an exchange of a product held in the normal course of business with a product in a similar line of business to facilitate sales to customers
3. Neither the FV of the asset given up or the asst received can be reliably measured
4. The transaction is a non-monetary or non-reciprocal transfer to owners
NMT Measurement Criteria
- Commercial substance
- Ordinary course of business
- FV reliably measurable
- Non-monetary, non-reciprocal transfer between owners
NM items measured at fair value
- When revaluation gain or loss is reported in SCI, the exchange gain or loss is also reported in the P or L.
- When it is reported in OCI, the exchange too is reported in OCI
Derecognition
NT items are first revalued using spot rate, then derecognized the normal way
Difference between ASPE and IFRS measurement
ASPE
When FV of both asset given up and asset received can be reliably measured, the FV of asset given up is used for initial measurement .
Reverse for IFRS
Discontinued Operations
Chapt 61
IFRS 5
Definition of discontinued operations
A discontinued operation is a component of an enterprise that has been disposed of (either by sale, abandonment, or spin off) or has been classified as Held for Sale
What are the criteria to classify a discontinued operations as a component of an entity
It is a component of an entity that has been disposed of or HFS based on any of these criteria
- Represents part of a major line or geographical area
- It is part of cordinated plan to sell a major line or area
- A subsidiary aquired exclusively for resale
What are the criteria to be met for Held for Sale
- Approved plan to sell
- Available for immediate sale
- Active program to find a buyer
- Sale is probable within one yr
- Actively marketed at a reasonable price
- Significant changes unlikely
How are discontinued ops & HFS measured
Measured at the lower of (carrying value and FV ) less cost to sell and Presented as a separate element of income in both current and prior periods
How is the statement of discontinued ops presented
Sales xx
Expense (x)
Income from discontinued ops xx
Write down from discontinued ops x
Inc/loss from discont ops b4 tax x
Inc tax (expense) / recovery (x)
Net inc / (loss) from discont ops (x)
How to calculate y/end income when theres an estimate after year end
Income up to date of decision to dicontinue xx
+ Income btx date of decision & y/end xx
- Write down to FV of asset x
- Tax (x)
Net Income xx
* Write down =
lower of FV/CV - (FV/CV x (1-comm%))
- If there is depreciation, it is calcualted to the date of classification
What are the key assertions for various accounts
Cash and cash equivalents
Existence
Key assertions for revenue, receivables, and receipts
Sales - Occurrence, Accuracy and Cut-off
AR - Existence, Accuracy, valuation, and allocation
Key assertions for purchases, payables, and payment
Expenses - Completeness and cut off
Payables - Completeness, Accuracy valuation and allocation
Key assertions for inventory & COGS
Inventory - Existence
- Accuracy, valuation &
allocation
COGS - Completeness, Accuracy &
Cut-off
Key assertions for PP&E
Existence, Accuracy,valuation & Allocation
Key assertions for payroll expenses
Accuracy and Occurrence
