Term
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Definition
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Term
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Definition
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Term
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Definition
| rights and responsibilities of ownership are retained by the lessor; the lessee merely uses the asset temporarily |
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Definition
| formulated as leases, but in reality are installment purchases |
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Term
| to classify a lease a capital lease meet 1 of the following criteria: |
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Definition
!) ownership transfers at the end of the lease
2) contains a bargain purchase option
3) concancelable lease term is equal to 75% or more of the expected economic life of the asset
4) th PV of the "minimum lease payments" is = or greater than 90% of the fair value of the asset |
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Term
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Definition
| a provision in the lease contract that gives the lessee the option of purchasing the leased property at a bargained price |
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Term
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Definition
| the noncancelable part plus any period covered by a bargain renewal option |
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Term
| capital leases are recorded as what at inception |
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Definition
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Term
| a lessor must meet what 2 additional criteria to classify a lease as capital |
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Definition
1) the collectability of the lease payments are reasonably assured
2)if any costs to the lessor have yet to be incurred, they are reasonably predictable |
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Term
| what is the objective of lease negotiations |
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Definition
sale by the lessor
operating lease by the lessee |
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Term
| IFRS criteria that normally lead to classification of finance lease |
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Definition
1) ownership transfers at end of term
2) BPO
3) noncancelable lease term is a "major portion" of assets life
4) the PV of the minimum lease payments is > or = than "substantially all" of the Fair value of the asset
5) specialized asset only usable by the lessee
others
1) the lessors losses are borne by the lessee upon cancellation
2) gains and losses from changes in fair value go to the lessee
3) leases contains a "bargain renewal option" |
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Term
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Definition
| lease agreements call for uneven rent payments during the term of the lease. ie. initial payment is waived |
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Term
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Definition
modifications to the asset. Depreciate over the shorter of the physical life or the lease term
- depreciate to leasehold improvements |
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Term
| the leased asset is recorded by the lessee at: |
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Definition
| the PV of the minimum lease payments or the fair value, whichever is lower |
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Term
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Definition
| 1)lessor debits lease receivable for the gross sum of the lease payments and credits "unearned interest revenue" for the difference between the total of the payments and the present value of the payments |
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Term
| the depreciation base period |
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Definition
| the lease term unless there is a BPO or asset transfer, in that case the lifetime of the asset |
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Term
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Definition
- differs from a direct financing lease in only one respect
- the lessor receives a manufacturers profit on the sale of the asset.
- this profit exists when the fair value of the asset exceeds the cost or carrying value of asset sold |
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Term
| how does a lessee account for a BPO |
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Definition
| - adds the present value of the BPO price to the PV of periodic rental payments when calculating the initial asset and liability |
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Term
| how does a lessor account for a BPO |
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Definition
| - when computing periodic rental payments, subtracts the PV of the BPO price from the amount to be recovered (Fair value) to determine the amount that must be recovered from the lessee through periodic rental payments |
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Term
| the gross investment in the lease |
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Definition
| is the total of periodic rental payments and any residual value |
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Term
| guaranteed residual value |
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Definition
- the lessor will recover a specified residual value when custody reverts back to the lessor
- reduces the lessors risk
- lessee has incentive to keep asset in good condition |
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Term
| how to account for guaranteed residual value |
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Definition
| - both the lessee and lessor view it as an additional lease payment |
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Term
| unguaranteed residual value |
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Definition
| - the lessor still expects to receive the residual value, even though the lessee is not required to pay it. |
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Term
| accounting for unguaranteed residual value |
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Definition
1) lessee does not include the residual value
2) lessor includes the residual value in the initial calculation |
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Term
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Definition
| the lessee must pay for maintenance, taxes, insurance, etc |
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Term
| Are executory costs calculated in the minimum lease payments |
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Definition
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Term
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Definition
| the lessee uses the lower of the interest rate implicit in the lease or the lessee's own incremental borrowing rate |
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Term
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Definition
| costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease |
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Term
| IFRS use of discount rates |
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Definition
| both the lessee and lessor use the rate implicit in the lease |
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Term
| initial direct costs for operating leases |
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Definition
| recorded as assets and amortized over the term of the lease |
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Term
| initial direct costs for financing leases |
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Definition
interest revenue is earned over the lease term, so initial direct costs are matched with the interest revenues they help generate
- deferred and recognized over the lease term |
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Term
| initial direct costs for sales-type leases |
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Definition
| expensed at the inception of the lease |
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Term
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Definition
| are not included in the minimum lease payments because they are not determinable at the inception of the lease. they are included as components of income when and if they occur |
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Term
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Definition
1) general description of the leasing arrangement
2) minimum future payments, in the aggregate for each of the 5 succeeding years
3)residual values, contingent rentals, sublease rentals and executory costs
4) the lessor must disclose the net investment in the lease (PV of the gross investment in the lease) |
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Term
| what is the benefit of classifying a lease as operating |
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Definition
| no liability on the balance sheet (also no asset) |
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Term
| statement of cash flow classification (capital leases) |
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Definition
interest: operating activities
principle: financing activities |
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Term
| cash receipts from a sales-type lease are classifies on the SOCF how: |
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Definition
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Term
| sale-leaseback transaction |
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Definition
| owner of an asset sells it and immediately leases it back from the new owner |
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Term
| why do people do sale-leaseback transactions |
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Definition
1) asset has been financed with debt and interest rates have fallen
2) generate cash |
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Term
| sale-leaseback concept (accounting wise) |
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Definition
| - the lessee simply is borrowing the selling price at a certain interest rate |
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Term
| IFRS vs US on a sale-leaseback (capital leases) |
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Definition
IFRS: gain is recognized over the lease term
GAAP: recognized over the useful life |
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Term
| when leased property includes land and a building and there is a BPO or transfer of title record: |
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Definition
| lessee should record each asset separately |
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Term
| IFRS treatment of assets that include land and buildings |
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Definition
| record separately unless the land is immaterial |
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Term
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Definition
| third party, long term creditor provides nonrecourse financing for a lease agreement between a lessor and lessee |
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