Accounting for Leases Flashcards
What is an operating lease?
Rental agreement
What basis does the lessee record rent expense?
Straight-line basis
How should lease bonus be classified?
As an asset(deferred charge) and amortized using the straight-line method over the life of the lease
What is something that permanently affixed to the property and reverts back to the lessor at the termination of the lease?
Leasehold improvements
Leasehold improvements should be depreciated over the?
Lesser of the lease life or asset/improvement life
How is a rent kicker classified?
Period expense
How is a refundable security deposit reported?
An asset until refunded by the lessor
What must the lessee due in consideration of free or reduced rent?
Take the total rent expense to be paid for the entire lease term and divide it evenly over each period
How is a nonrefundable deposit reported?
Deferred by the lessor and capitalized by the lessee until the lessor considers the deposit earned
How is a refundable deposit treated by the lessor and lessee?
Treat as a receivable by the lessee and a liability by the lessor until the deposit is refunded to the lessee
How does a lessee record a capital lease?
Dr. Fixed asset - leased property, Cr. Liability
What is the mneumonic for the conditions of being a capital lease under US GAAP?
OWNS
What are the US GAAP conditions in order to capitalize lease?
Ownership transfers, Written option for bargain purchase, 90% of leased property FV<= PV of lease payments, 75% or more of asset economic life is being committed in lease term
How many conditions must be met in order to capitalize a lease?
One
What is the mneumonic for the conditions of being a capital lease under IFRS?
OWESFACS
What are the IFRS conditions in order to capitalize a lease?
Transfers ownership, written bargain, major part of the economic life, substantially all of the fair value, gains and losses from the fluctuation, ability to continue the lease, lessee can cancel the lease, specialized nature
What is the mneumonic under US GAAP for a lease to be classified by the lessor as a sales-type or direct financing lease?
LUC
How many conditions must be met by the lessor for it to be classified as a sales-type or direct financing lease?
All three
What are the conditions to be met in order to be classified as a sales-type or direct financing lease?
Lessee owns the leased property, Uncertainties do not exist regarding any unreimbursable costs to be incurred by the lessor, and collectibility of the lease payments is reasonably predictable
What profits are earned in a sales-type lease?
Gain on sale and interest income
What profits are earned in a direct financing lease?
Interest income
The lessee records the lease as an asset and a liability at the?
Lesser of fair value of the asset at the inception of the lease or cost(present value of the minimum lease payments
When calculating the present value of the minimum lease payments, the lessee uses?
The lesser of the rate implicit in the lease or lessee’s incremental borrowing rate
How to calculate the depreciation expense for leased assets?
Capitalized lease assets - salvage value = Depreciable basis / Periods of benefit = Depreciation expense
