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FAR REVIEWER > Lessee Accounting > Flashcards

Lessee Accounting Flashcards

1
Q

New lease standard

A

IFRS 16

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2
Q

Defined as a contract or part of contract that conveys the right to use the underlying asset for a period of time in exchange of consideration

A

Lease

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3
Q

When to say there’s a right to control the use of an asset?

A
  1. Obtain substantially all the economic benefits from the use of the identified asset or by having an exclusive use of the asset.
  2. Direct use of the identified asset
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4
Q

2 classification of lease

A
  1. Finance lease
  2. Operating lease
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5
Q

General rule of leases

A

All leases shall be accounted for by the lessee as a finance lease under the new lease standard

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6
Q

Exeption to the general rule:

A

Lessee is permitted to make an accounting policy election to apply the operating lease accounting under two optional exemption:
1. Short-term lease
2. Low value lease

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7
Q

How does the lessee recognize the lease payments in operating lease model ?

A

As expense either straight line basis over the LEASE TERM or another systematic basis of this is more representative of the pattern of the lessee’s benefit.

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8
Q

Under the operating lease model, the periodic rental is recognized as ____.

A

Rent expense

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9
Q

Short-term lease

A

A lease that has a term of 12 months or less at the commencement date of the lease

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10
Q

True or false:

A lease that contains a purchase option is a short-term lease

A

False
-Not a short-term lease

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11
Q

True or false

The election for short-term lease shall be made by class of underlying asset.

A

True

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12
Q

A lease that asses the value of an underlying asset based on the value of the asset when it is new regardless of the age of the asset being released

A

Low value lease

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13
Q

True or false

The new lease standard provides quantitative threshold for low value asset.

A

False
- does not provide quantitative threshold

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14
Q

True or false

Low value asset is a matter of professional judgment.

A

True

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15
Q

What are the typical examples of low-value underlying assets?

A

Personal computer, office furniture and equipment

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16
Q

Finance lease

A

A lease that transfer substantially all the risk and rewards incidental to ownership of an underlying asset.

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17
Q

Initial measurement of right to use asset

A

@cost
It comprises of the ff:
a. Present value of lease payments
b. Lease payments (Lease bonus less lease incentives)
c. Intial direct cost
d. Estimate cost of dismantling, removing and restoring

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18
Q

Lease incentives

A

Payments by lessor to the lessee associated with the lease. (reimbursement)

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19
Q

True or false

The lease incentives should be deducted from the cost of the right to use asset.

A

True

20
Q

Leasehold improvements are initial direct costs and included in the cost of the right to use asset.

A

False
-not initial direct cost
-not included in the cost of the right to use asset

21
Q

True or False

Leasehold improvements are seperately accounted for as PPE.

A

True

22
Q

True or false

Leasehold improvements are depreciated over the shorter between the lease term and the life of the improvements.

A

True

23
Q

True or false

Security deposit refundable upon the lease expiration is not accounted for as an asset by the lease

A

False
-is accounted for

24
Q

Subsequent measurement of right of use asset

A

Lessee shall measures the right of use asset as cost model.

The CA of right of use asset is adjusted for any remeasurement of the lease liability.

25
Q

Presentation of right of use asset

A
  1. Seperate line item as NCA
  2. Include in the appropriate line item which the corresponding underlying asset be presented.
26
Q

Depreciation of right of use asset

A

● right of use asset over the useful life of the underlying asset under the ff:
a. Lease transfer ownership of the underlying asset to the lessee at the end of lease term.
b. Lessee is reasonably certain to exercise a purchase option.

● if the above statement is gone, the lessee shall depreciate the right of use asset over the shorter between usefule life of the asset and lease term.

27
Q

Measurement of lease liability

A

• lease liability is measured at the PV of lease payment using either
1. Interest rate implicit in the lease
2. Incremental borrowing rate

28
Q

Component of lease payments

A
  1. Fixed lease paymets
  2. Variable lease payment
  3. Exercise purchase option
  4. Amount expected to be payable by the lessee under residual value guarantee
  5. Termination penalties
29
Q

Fixed payments

A

Payments made by the lessee to the lessor for the right to use an underlying asset during the lease term.

30
Q

Variable payments

A

Payments made by the lessee for the right to use the underlying asset during the lease term that vary because changes in facts or circumstances occurring after the commencement date other than passage of time.

31
Q

True or false

Payments that are based on an index or interest rate are included in the lease payment.

A

True

32
Q

True or false

Payments that are based on passage of time or future usage of the underlying asset are not included in the lease payments.

A

True

33
Q

Residual value guarantee

A

Guarantee made to the lessor by a party unrelated to the lessor that the value of an underlying asset at the end of the lease term will be at least at specified amount.

34
Q

Unguarantee residual value

A

Portion of residual value of the underlying asset, the realization of which by the lessor is not assured about the value of the asset.

35
Q

Executory cost

A

Ownership expenses such as maintenance, taxes, and insurance for the underlying asset.

36
Q

Disclosure

A
  1. Depreciation charge
  2. Interest expense on lease liability
  3. Expenses relating to short-term (excluded w/ the term of 1 mon or less)
  4. Exepnses relating to low value leases (excluded w/ term of 1 mon or less)
  5. Expenses relating to variable lease payment not included in measurement of lease liability.
  6. Income from subleasing
  7. Total cash out flow
  8. Addition to right of use assets
  9. CA of right of use asset at the end of the reporting period by class.
  10. Short term or low value leases accounted for operating lease.
37
Q

Exercise of purchase option

A

Entry:
Lease liability xxx
Cash. xxx

*amount is equal to the absolute amount of the purchase option.

38
Q

Nonexercise of purchase option

A

• Loss is recognized
Loss = CA at the end of lease term - purchase option (absolute amount)

• JE:
Accumulated depreciation
Lease liability
Loss on finance lease
Right of use asset

39
Q

If the ownership will not transfer to the lessee;
What happen to the ff:
a. Depreciation
b. Residual/guarantee residual value

A

• depreciated over the shorter between CA and the lease term
• guarantee residual value shall be deducted from the cost of the right of use asset

40
Q

What happen when the FV of the asset at the end of the lease term is less than the residual value guarantee by the lessee?

A

Lessee is obligated to pay the lessor for the difference.

41
Q

True or False

Initial direct cost is capitalized as part of the cost of right of use asset

A

True

42
Q

Purchase option is exercised
What happen to the ff:
a. Purchase option
b. Residual/guarantee residual value

A

• PV of purchase option included
• residual value shall be deducted

43
Q

Purchase option is not exercised
What happen to the ff:
a. Purchase option
b. Residual/guarantee residual value

A

• excluded PV of purchase option
• guarantee residual value shall be deducted

44
Q

Ownership of the asset will be transferred to the lessee;
What happen to the ff:
a. Residual value
b. Guarantee residual value

A

• excluded the guarantee residual value
• residual value shall deducted

45
Q

Accounting treatment for executory cost?

A

Expense outright

FAR REVIEWER (3 decks)

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