Leases

Leases

Classification
1. Operating
  1. Leases not classified as finance
  2. Accounting / Recognition
    1. Straight-line basis for both parties
2. Finance
  1. Accounting / Recognition
    1. Lessor
      1. 1. Derecogn. asset; 2. Recogn. receivable = Net investment (GI (Min. lease pmts + unguarunteed RV) discounted @ interest implicit in lease); 3. Initial direct cost incl. in NI; 4. Recogn. finance income as per effective interest rate method; 5. Lease PMTS against GI
      2. Remember manufacturer/dealer lessors
    2. Lessee
      1. 1. At inception of lease term recogn. an asset & liability at LOWER of: -FV of leased asset;-PV of min. lease pmts; 2. Apportion pmts between finance cost & capital; 3. Initial direct cost incl. in CA of asset; 4. Deprec. asset over shortest of lease term/econimic life
  2. Possible indicators: 1. Ownership transferred at end of lease; 2. Option to purchase; 3. PV of min. lease pmts =/< FV of asset; 4. Specialised asset;
Interest rate (Implicit rate) : PV = Fair value of leased (Incl. Direct cost) asset ; PMT = Installment; FV = GRV +URV ; N = Lease term ;CompI= IIR
Calc. PV of min. lease pmts: PMT = Installment; FV = GRV(Only); N = term; i = IIR; CompPV=
Example journal (Excl. VAT or funnies)
Deferred tax
Sale & leaseback transaction

Resource summary

	Created by meyer cohn over 9 years ago

	Copied by Faizal Ido almost 8 years ago