Lease

Question 1

IFRS criteria to record a lease (lesse.. gaining access)

Answer 1

All leases are capitalized but use this as criteria.
- There is an identifiable asset the customer gains a right to
- Does the lessee obtain
substantially all the economic benefits?
- Does the lessee have the right to direct the use of the asset?

Question 2

How to record a lease (lesse)

Answer 2

DR Rou Asset
CR Lease liability

At PV of minimum lease payments. Rem BGN or END for payments!

Question 3

Subsequent measurement for Lesse

Answer 3

ROU Asset: Depreciate ROU Asset over life of asset & any impairment

Lease Liability: Record interest expense at reporting periods. If BGN do lease obligation at end of p/y - payment x rate. If END do lease obligation at end of p/y x rate.

DR interest expense
CR Lease liability

To record payments
DR Lease liability
CR Cash

Question 4

Included in calc of PV future lease payments

Answer 4

• PV of all lease payments
• direct costs incurred by lease
• estimate of costs at termination
• Variable payments dependent on index rate
• BPO
• GUARANTEED residuals
• Termination penalties expected to pay

Question 5

Derecognition of lease - Returned to lessor

Answer 5

DR Acum Dep

CR ROU Asset

Question 6

Derecognition of lease - Residual (not guaranteed)

Answer 6

DR Acum Dep
CR ROU Asset

DR Loss on derecogntion of lease
CR Cash

Question 7

Derecognition of lease - BPO

Answer 7

DR Asset
DR Acum DEP
CR ROU Asset (still be some outstanding as BPO included at start)

Lease liability will already be nil.

Question 8

Lessor criteria for lease IFRS & ASPE

Answer 8

Finance lease if: (Capital lease ASPE)

• 1. Title transfers to the lessee by the end of the lease term.
     2. A bargain purchase option exists, and at the date the lease begins, it is reasonably certain that the lessee will exercise it.
     3. The lease term is of such a duration that the lessee will receive substantially all the economic benefits expected to be derived from the use of the leased property over its lifespan. 75%
     4. The present value (PV) of the minimum lease payments amounts to substantially all of the fair value (FV) of the asset. 90%
     5. The asset is specialized in nature and only the lessee can use it without major modifications.

Question 9

Subsequent for Lessor

Answer 9

Pmt:
DR Cash
CR Lease receivable

Interest:
DR Lease receivable
CR Interest revenue

Question 10

Initial Lessor

Answer 10

DR Lease receivable (PV of pmts due)
CR Revenue

DR COGS
CR Inventory

Question 11

Operating lease for Lessor

Answer 11

Risks and rewards of ownership never passed. Record on a straight line basis over lease term.

DR CASH
CR REVENUE

Question 12

ASPE VS IFRS for Lessee

Answer 12

IFRS: ALL leases capitalized
ASPE: Capital or operating

Question 13

ASPE VS IFRS for Lessor

Answer 13

IFRS: Finance or operating
ASPE: Capital or operating

Question 14

ASPE Criteria for Lessee

Answer 14

ASPE can use capital or operating, BUT
Must be capital if meet any of the following:

• Reasonable assurance that ownership will transfer by end of term i.e auto transfer or BPO
• Lease duration is substantially all benefits of asset (75%)
• PV of min lease payments is substantially all of the current fair value of asset (90%)

note: lease cannot be recorded above FV

Question 15

Discount rate for ASPE

Answer 15

Lower of implicit and borrowing cost