Long Term Liability & Equity Flashcards
(17 cards)
Lease
Asset is specifically identifiable
Customer has the right to obtain largely all of economic benefit from asset over contract term
Customer (not the supplier) has the ability to direct how and for what objective the underlying asset is used
Lease Type
Finance Lease - Represent Purchase
Operating Lease - Other Leases
Finance Lease Conditions (Satisfy any 1)
Lease transfers ownership of underlying asset to lessee
Lessee has an option to purchase underlying asset and is reasonably certain it will do so
Lease term is major part of asset’s useful life
Present value of the sum of the lease payments equals or exceeds substantially
all of the fair value of the asset
Underlying asset has no alternative use to the lessor
A/cing exemption for Lessee - Expense the amount on straight line basis
Term is 12 months or less (IFRS & USGAAP) (or) Low-value asset up to USD 5,000 in sales price (IFRS only)
IFRS
Lessee have same a/cing treatment irrespective of lease type
Lessor has 2 different a/cing treatment
US GAAP
Both Lessee & Lessor have 2 different a/cing treatment
Lessee A/cing Treatment
IFRS - PV of future payment is recorded at inception as ROU asset & lease liability. ROU asset will be depreciated on straight line basis over contract term & discount will be unwound from lease liability balance. So after inception ROU & LL balance wont match. Principal payt comes under financing. Int payt is either Operating or financing
US GAAP - Finance lease has same treatment as above. In operating lease amortization from ROU will be lease payment minus interest exp to ensure that total charge in income statement matches lease payment & so ROU & LL balance always match. In this case, int & amortization exp are combined & shown separately as lease exp in income statement & entire payment will be shown as operating activity
Lessor A/cing Treatment
IFRS & US GAAP has same treatment
Financing Lease - Derecognize asset. Recognize Lease receivable as PV of future CF. Difference is G/L. Entire cash receipt is treated as operating activity
Operating Lease - Lessor keeps the leased asset on its books and recognizes lease revenue on a straight-line basis. Interest revenue is not recognized because the transaction is not considered a financing. Entire cash receipt is treated as operating activity
Defined Benefit Plan
IFRS (3 Components) - Service cost (include PSC), net int exp or income accrued on beginning net pension asset or liability - P&L, change in net pension asset or liability - OCI (Actuarial G/L & actual return on plan assets less any return included in 2nd component - enter in OCI)
USGAAP (5 Components) - Service cost, interest expense accrued on the beginning pension obligation & expected return on plan assets, which is a reduction in the amount of expense recognized - in P&L, PSC & Actuarial G/L - in OCI. USGAAP also permits entity to immediately recognize Actuarial G/L in P&L
Share based compensation plan amt
Under both USGAAP & IFRS, companies estimate the FV of share-based compensation at the grant date and recognize it as compensation expense ratably over the plan’s vesting schedule
Stock Grant
For an outright stock grant, compensation expense is reported on the basis of the fair value of the stock on the grant date—generally the market value at grant date. Compensation expense is allocated over the period benefited by the employee’s service, referred to as the service period. The employee service period is presumed to be the current period unless there are some specific requirements, such as three years of future service, before the employee is vested
Restricted stock grant - requires the employee to return ownership of those shares to the company if certain conditions are not met. Common restrictions include the requirements that employees remain with the company for a specified period or that certain performance goals are met. A/cing treatment is same
Shares granted contingent on meeting performance goals are called performance
shares. The amount of the grant is usually determined by performance measures other than the change in stock price, such as accounting earnings or return on assets. A/cing treatment is still same
Stock Options
Compensation expense related to option grants is reported at fair value under both IFRS and US GAAP. Both require that fair value be estimated using an appropriate valuation model. Whereas the fair value of stock grants is usually the market value at the date of the grant (adjusted for dividends prior to vesting), the fair value of option grants must be estimated. Accounting standards do not prescribe a particular model. Generally, though, the valuation method should (1) be consistent with fair value measurement, (2) be based on established principles of financial economic theory, and (3) reflect all substantive characteristics of the award. When an option is exercised, the market price of the option at the time of exercise is not relevant.
objective of a share-based compensation plan
Attracting new employees, retaining & motivating existing employees, alignment of employee interest with SH
Stock option may make employee both
risk averse & risk seeking
Stock grant vs Stock option grant
Whereas the fair value of stock grants is usually based on the market value at the date of the grant, the fair value of option grants must be estimated.
Both IFRS & USGAAP requires
Net pension asset or liability to be shown (Fair value of fund asset - PV of Estimated pension obligation)
US GAAP (page 277)
A sales-type lease treats the lease as a sale of the asset, and revenue is recorded at the time of sale equal to the value of the leased asset. Under a direct financing lease, only interest income is reported as earned. Under an operating lease, revenue from lease receipts is reported when collected.
