Ch 20 lessee lessor differences Flashcards
(16 cards)
Lessee vs. Lessor - Asset Recognition
Lessee:
Recognizes a right-of-use asset (measured at the lease liability + payments made before the lease starts).
Lessor:
Retains the leased asset on its balance sheet (no right-of-use asset recognition).
Lessee vs. Lessor - Liability Recognition
Lessee:
Recognizes a lease liability (the present value of future lease payments).
Lessor:
Recognizes a lease receivable (the net investment in the lease).
Lessee vs. Lessor - Initial Measurement
Lessee:
Measured at cost: Lease liability + payments made before the lease start (minus incentives) + initial direct costs.
Lessor:
Measured at the gross investment in the lease (includes lease payments and any residual value).
Lessee vs. Lessor - Amortization
Lessee:
Amortizes the right-of-use asset over the lease term or useful life (if ownership is expected to transfer).
Lessor:
Amortizes the lease receivable as payments are made, recognizing interest income for finance-type leases.
Lessee vs. Lessor - Lease Payments
Lessee:
Lease payments are split between interest and principal, reducing the lease liability.
Lessor:
Lease payments received are recognized as rental income or interest income (for finance-type leases).
Lessee vs. Lessor - Lease Classification
Lessee:
Leases are classified using the right-of-use asset and liability approach.
Lessor:
Leases are classified as finance leases or operating leases, depending on the transfer of risks and rewards of ownership.
Lessee vs. Lessor - Impairment of Asset
Lessee:
Right-of-use asset is subject to impairment testing (similar to other intangible assets).
Lessor:
Leased assets under finance or sales-type leases are subject to impairment testing.
Unguaranteed residual value is periodically reviewed for impairment.
Lessee vs. Lessor - Lease Term Adjustments
Lessee:
The lease liability is recalculated if the lease term or payments change (e.g., renewals or modifications).
Lessor:
The lease receivable is adjusted if the lease term or payments change.
Lessee vs. Lessor - Tax Treatment
Lessee:
Often benefits from tax deductions for lease payments (if treated as operating leases).
Lessor:
Can deduct depreciation on the leased asset and recognize income from lease payments.
Key Differences in Accounting Treatment (Lessee)
Lessee:
Right-of-use asset and lease liability are recorded on the balance sheet.
Lease expense consists of depreciation (right-of-use asset) and interest expense (on lease liability).
Key Differences in Accounting Treatment (Lessor)
Lessor:
Retains the leased asset on its balance sheet (if it’s an operating lease).
Recognizes lease receivable (finance or sales-type leases) and interest income over the lease term.
Lessee vs. Lessor - Finance Leases
Lessee:
Accounts for finance leases as an asset purchase with financing (capitalizes right-of-use asset and lease liability).
Lessor:
For finance leases, recognizes lease receivable and records interest income over the lease term.
Lessee vs. Lessor - Operating Leases
Lessee:
For operating leases, recognizes lease expenses in profit or loss as lease expense.
Lessor:
For operating leases, retains the asset on the balance sheet and recognizes rental income.
Lessee vs. Lessor - Sales-Type Leases
Lessee:
Sales-type leases are treated similarly to finance leases, capitalizing the right-of-use asset and recognizing lease liability.
Lessor:
Recognizes the sale of the leased asset and recognizes gross profit in the case of a sales-type lease.
Key Differences Between Lessee and Lessor
Category Lessee Lessor
Records asset? Yes – Right-of-Use asset Yes (if finance lease: lease receivable)
Records liability? Yes – Lease liability No (unless finance lease – records receivable)
Income/Expense? Interest + Depreciation Rental income or interest income
Asset ownership? Usually temporary Lessor usually keeps ownership
Disclosures? Lease liabilities, asset, expenses Receivables, income, future payments
