F5 - Accounting for Leases Flashcards
How do you account for the bargain purchase option?
The present value of the bargain purchase option is added to the beginning present value of the lease.
When should a gain from the sale-leaseback transaction be deferred and subsequently amortized?
When the seller-lessee retains the right to substantially all of the remaining use of the property (capital lease).
When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease?
Over the life of a lease.
At the inception of a capital (finance) lease, how should the guaranteed residual value be treated?
It should be included as part of the minimum lease payments at present value.
How do you calculate the profit in a sales-type (finance) lease?
Sales Price (or PV of payments if sales price not given) - Carrying Cost
When a lease is capitalized because of a transfer of title or bargain purchase, deprecation is based on the life of the asset or the lease?
The life of the asset.
What is the basis for calculating depreciation on a lease that is capitalized because of a bargain purchase and has a salvage value?
Cost + bargain purchase - salvage value
Leasehold improvements should be depreciated (amortized) over the?
Lesser of:
a. Lease life
b. Asset/improvement life
How should the lessee record a capital (finance) lease?
Lesser of:
a. FV of asset at the inception of lease
b. PV of minimum lease payments, bargain purchase option and guaranteed residual value (Exclude executory costs and optional buyout)
Note: IFRS - initial direct costs are added to the asset
What interest rate is used when recording a capital (finance) lease?
Lesser of:
a. Implicit rate
b. Lessee’s incremental borrowing rate/ market rate
What is the criteria for lessee capital lease under US GAAP?
Must meet one: O - Ownership transfers at end of lease W - Written bargain purchase option N - PV of payments >= 90% of FV S - Lease term is >= 75% of asset economic life
Criteria N and S cannot be used for a lease that begins within the last 25% of the original estimated economic life of the leased property.
What is the criteria for lessee finance lease under IFRS?
Must meet one:
O - Ownership transfers at end of lease
W - Written bargain purchase option
E - Lease term is major part of economic life
S - PV of payments at least substantially all of the FV
F - Gains/losses from fluctuation in FV of the residual are accrued
A - Lessee has the ability to continue the lease
C - Lessee can cancel the lease (lessor’s losses)
S - Leased assets are of a specialize nature
What is the criteria for lessor sales-type/direct financing lease under US GAAP?
Must meet all 3:
L - Lessee “owns” lease property
U - Uncertainties do not exist regarding costs to be incurred by the lessor
C - Collectability of the lease payments is reasonably predictable
What is the difference between a sales-type lease and a direct financing lease?
In a sales-type lease the FV at inception differs from the cost or carrying amount so there is a gain on sale (in addition to interest income)
In a sale-leaseback transaction accounted for under IFRS, when should a gain be deferred and subsequently amortized?
When the seller-lessee accounts for the lease as:
a. a finance lease
b. an operating lease and the sales price is above fair value
