Leases
March 8, 2011
Jody Grewal, Kieng Iv,
Lisa Ryerson, May Leung
AGENDA
•
•
Lessee (Classification, Accounting, Disclosures)
Lessor (Classification, Accounting, Disclosures)
•
•
•
•
•
•
Sales and Leaseback
Impairment
Classification Changes
IFRIC 4/ SIC 27
Exposure Draft
Financial Statements Example
1
LEASE DEFINITION
What is a lease?
A lease is an agreement whereby the lessor
conveys to the lessee in return for a payment or
series of payments the right to use an asset for an
agreed period of time. (IFRS)
Lease is the conveyance, by a lessor to a lessee,
of the right to use a tangible asset, usually for a
specified period of time in return for rent. (ASPE)
LESSEE PERSPECTIVE
3
Lessee Classification:
Capital or Operating Lease (ASPE 3065)
Substantially all of the rewards and risks of ownership have been
transferred to the lessee when ONE of the following 3 tests is met:
• Test #1: Ownership test – Is there a transfer of ownership at the end of
the lease term or a bargain purchase option?
• Test #2: Economic life test – Is the lease term ≥75% of the leased
asset’s economic life?
• Test #3: Fair Value test - Is the PV of the minimum lease payments
≥90% of the leased asset’s fair value?
• “Yes” to any of the above: Capital Lease
• “No” to all of the above: Operating Lease
Lessee Classification:
Capital or Operating Lease (ASPE 3065) (cont’d)
Explanation of terms:
• Rewards of ownership: expectation of profits and gain from
appreciation of value of the leased asset
• Risks of ownership: possibilities of losses from idle capacity or
obsolescence of the leased asset
• Bargain purchase option: allows lessee to purchase leased property
for a price sufficiently lower than FV
• Economic Life: remaining period during which the property is expected
to be economically usable
• Minimum Lease payments: Minimum rental payments+ Guaranteed
residual value + Penalty for not renewing or extending lease + Bargain
purchase option
• Minimum rental payments: Regular payment to lessor, excluding
executory costs (insurance, maintenance, tax)
Lessee Classification:
Finance or Operating Lease (IAS 17)
Substantially all of the rewards and risks of ownership have been transferred
to the lessee when ONE of the following 4 tests is met:
• Test #1: Ownership test – Is there a transfer of ownership at the end of
the lease term or a bargain purchase option? (same as ASPE)
• Test #2: Economic life test – Is the lease term a Major Portion of the
leased asset’s economic life? (no quantitative threshold, ASPE
specifically states at least 75%)
• Test #3: Fair Value test – Do the PV of the minimum lease payments
cover substantially all of the FV of the leased asset? (no quantitative
threshold, ASPE specifically states at least 90%)
• Test #4 (additional IFRS test): Specialized asset test – Are the leased
assets of such a specialized nature that only the lessee can use them
without major modifications? (no equivalent ASPE test)
• “Yes” to any of the above: Finance Lease (Capital under ASPE)
• “No” to all of the above: Operating Lease
Lessee: Operating Lease Treatment
Lease
Payments
IAS 17
ASPE 3065
Expensed on a straightline basis unless another
systematic basis is more
representative
Expensed on a straight-line
basis unless another
systematic basis is more
representative
Renegotiation No specific guidance
Continue to account for as
the original lease until the
original lease term expires
When the lease term
expires, account for using
the new lease terms.
Lessee: Operating Lease Treatment
IAS 17
ASPE 3065
Incentives
Recognize aggregate
benefit as a reduction of
rental expense over lease
term
Reduces the lease expense
over the lease term
Costs
Incurred
In accordance with
applicable standard
(SIC 15)
Includes costs effectively
reimbursed through an
incentive agreement
(SIC 15)
No specific guidance
Residual
Value
Guarantee
No specific guidance
Included in lease payments
when likely guarantee will be
required
Lessee: Operating Lease Treatment
IAS 17
Disclosures
ASPE 3065
• Total future minimum
• Future minimum lease
lease payments for nonpayments
• Aggregate
cancellable leases for
• For each of the next 5
each period
• Less than a year
• 1-5 years
• Over 5 years
years
• Nature of other
commitments under
• Total future minimum
leases
sublease payments
• Exception:
expected to be received
• Leases with an initial
• Lease/sublease
lease term of a year
payments expensed in
or less
the year
• General description of
significant lease
arrangements
Lessee: Capital and Finance Lease Treatment
Recognition
Amount
IAS 17
ASPE 3065
Lower of:
a) Fair Value of Leased Asset;
or
b) Present Value of Minimum
Lease Payment
Present Value of
Minimum Lease
Payment excluding
executory cost but
cannot exceed the fair
value of the leased
asset
Discount Rate If practical, use implicit interest
rate and if not practical use
incremental borrowing rate
Differences
Lower of:
a) Implicit Interest
Rate
b) Incremental
Borrowing Rate
•The discount rate may be different under IFRS than
ASPE because ASPE uses lower of the implicit and the
borrowing rate while IFRS uses the implicit rate if it is
practical to calculate
10
Lessee: Capital and Finance Lease Treatment
IAS 17
ASPE 3065
Allocation of Lease
Payment
First allocate to interest
income by applying
discount rate by
outstanding liability at
beginning of period
then the rest to the
reduction of the liability
Allocate to executory
cost, interest expense
and reduction in
outstanding liability.
Interest expense is
calculated by applying
the discount rate to the
outstanding liability.
Contingent Rent
Expensed
Same as IAS 17
Direct Cost Treatment
Costs directly
attributable with
specific leasing
activities are added to
the asset
No guidance provided
Differences
•Executory cost reduce the lease payment and
no guidance is provided for direct cost treatment
for ASPE
11
Lessee: Capital and Finance Lease Treatment
IAS 17
Depreciation Same as guidance provided
under IAS 16 and IAS 38
If lessee will not obtain
ownership then depreciate over
the shorter of the lease term and
useful life
Presentation Statement of Financial Position
 Asset
 Liability
ASPE 3065
Same as guidance provided
under 3061
Depreciate over lease term
unless there is a term to pass
ownership to lessee or a
bargain purchase option
exists. If either exists,
amortize over economic life
Present as:
 Asset – separate from
assets owned
 Liabilities – separate from
other long-term liabilities
 Lease obligations payable
within a year should be
classified as current
liability
12
Lessee: Capital and Finance Lease Treatment
Disclosure
IAS 17
ASPE 3065
•


•
•
•
Difference
Each class: the net carrying
amount, reconciliation between
the total of future minimum lease
payments and their PV
Disclose the total of future
minimum lease payments, and
their PV
Contingent rents recognized as
an expense, the total of future
minimum sublease payments
General description of significant
leasing arrangements




Cost
Accumulated amortization
and amortization method
used
Interest rate
Maturity date
Amount outstanding
If the leases are secured
•Depreciation could be different if the useful life is less than the lease
life
•Presentation guidance is more descriptive for ASPE
•Disclosure requirements are different
13
Card Question #1
ABC Corp leased a truck with an economic life of 7 years on
January 1, 2010 from Truck Corp. The yearly rental is $5,582.62
due at the start of the year, for 3 years and the fair value of the
truck is $20,000. There is no purchase option but the residual
value at the end of the lease (guaranteed) is $7,000. The truck
has been designed specifically for the use of the lessee. The
incremental borrowing rate of the lessee is 10%, and the implicit
rate of the lessor is 12%.
How should the lease be classified by the lessee (ABC Corp) under IFRS?
Test #1 – Ownership test:
No, since there is no transfer of title and no bargain purchase option
Test #2 – Economic life test:
No, since the lease term is 3 years and the truck’s economic life is 7 years, which not a major
portion (not even half)
Test #3 – FV test / Recovery of investment test:
Yes, since the minimum lease payments’ PV is substantially all of the FV of the leased asset.
(see next slide)
Card Question #1 (cont’d)
Test #3
Rental payments
$5,582.62
PV factor for an annuity due, 3 years at 12%
x2.69
PV of rental payments
15,017.54
PV of guaranteed residual value:$7K(PVF n=3, y=12%) = $7K(0.71178) = 4,982.46
PV of minimum lease payments
20,000
FV of lease asset
20,000
Test #4 (not necessary because Test #3 is passed) – Specialization test:
Yes, the truck has been designed specifically for ABC Corp, who will not have to make
major modifications to it
Conclusion?
Finance lease
What is the entry to record the lease by ABC Corp (lessee) on Jan 1, 2010?
• Dr. Leased Asset – Truck 20,000
• Cr. Obligation under Finance Lease 20,000
LESSOR PERSPECTIVE
16
Lessor Classification:
Sales-Type, Direct Financing or Operating lease (ASPE & IFRS)
From the lessor’s point of view, use the following tests to determine if the
lease transfers substantially all of the benefits and risks of ownership to
the lessee:
• Test #1: Are any of the lessee’s capital lease criteria met?
• Test #2: Is the credit risk associated with the lease normal?
• Test #3: Are the unreimbursable costs to the lessor estimable?
“No” to any of the above results in Operating Lease classification
“Yes” to all three of the above leads to Test #4:
• Test #4: Does the leased asset value equal the lessor’s book value?
If “yes”, classification is direct finance lease,
If “no”, classify as sales-type lease
Lessor Classification:
Sales-Type, Direct Financing or Operating lease (ASPE & IFRS)
(cont’d)
Test #2 guidance: When considering collection risk associated with the
lease, compare it to that of similar receivables
Test #3 guidance: If costs to lessor are not estimable, the lessor may
retain substantial risks associated with the leased asset
• N.B. A Lease can be a capital lease to the lessee but an operating
lease to the lessor
• N.B. A Lease that is an operating lease to the lessee will always be
an operating lease to the lessor (fails Test #1)
Lessor Classification:
Sales-Type, Direct Financing or Operating lease (ASPE & IFRS)
ASPE & IFRS differences
Test #4 Guidance: ASPE specifies that if the lessor is a
manufacturer/dealor and tests #1-3 are met, classification is likely a
Sales-Type
ASPE specifies that if the lessor is primarily involved in financing activities
and tests #1-3 are met, classification is likely Direct Financing
IFRS focuses on the economic substance of the lease, rather than ‘bright
lines’ or specific guidance
Classification: Issues for both Lessees & Lessors
• Lease classification made at inception of the lease
• Changes in estimates (economic life/residual value of leased asset) do
not result in a new classification
• Changes in provisions, renewal/extension considered a new lease and
may result in new classification
Lessor: Operating Lease Treatment
IAS 17
ASPE 3065
Asset
Recorded according to its
nature
No specific guidance
Income
Recognized on a straight-line
basis over the lease term
unless a more systematic
basis is more representative
of the time pattern of which
the benefit derived from the
asset is diminished.
Recognized on a
straight-line basis over
the lease term unless a
systematic basis is more
representative
Expenses
Costs are recognized as an
expense in the period
incurred
No specific guidance
Lessor: Operating Lease Treatment
IAS 17
ASPE 3065
Initial Direct
Costs
Added to the carrying
amount of the leased
asset
Deferred and amortized
over the lease term in
proportion to the recognition
of income
Depreciation
Refer to IAS 16 & 38
No specific guidance
Dealor Lessor No recognition of selling
profit because an
operating lease is not the
equivalent of a sale
No specific guidance
Lessor: Operating Lease Treatment
IAS 17
ASPE 3065
Incentives
Aggregate cost
recognized as a reduction
of rental income over the
lease term (SIC 15)
Treated the same as initial
direct costs
Disclosures
• Total future minimum
• Cost of PP&E held for
lease payments for
leasing purchases
non-cancellable leases
• Accumulated
for each period
amortization
• Less than a year
• Carrying amount of
• 1-5 years
impaired lease
• Over 5 years
receivables
• Total contingent rents
• Amount of any related
recognized as income
allowance for impairment
• General description of
the lease
arrangements
Card Question 2
• Company A enters into a 2- year lease with
Company B
• Payments:
• Yr 1: $2,000/month
• Yr 2: $1,000/month
• Total = $36,000
• What are the journal entries under IFRS for the
first month?
• For Company A
• For Company B
Card Question 2
LESSEE:
Dr. Rent expense
Dr.Prepaid rent
Cr. Cash
LESSOR:
Dr.Cash
Cr. Rent revenue
Cr. Unearned rent revenue
$1,500
$500
$2,000
$2,000
$1,500
$500
Lessor: Third-Party Participation
ASPE 3065.57-.60
• A lessor can assign lease payments to a 3rd
party
• Transaction is accounted for as a secured
loan by both parties when:
• Guarantee exists that ensures 3rd party’s
investment will be recovered
• 3rd party looks to lessor to recover (rather than
the property)
• Lessor retains substantial risks of ownership
LESSOR: Third-Party Participation
ASPE 3065.57-.60
• When the property is sold, lessor records proceeds
of sale as a loan
• Interest rate is that of a similar loan under such
conditions
• Until the loan is paid, lessor records:
• Lease payments as revenue
• Interest expense as an appropriate portion of each
rental payment with the remainder reducing the amount
of the loan
Lessor –Finance Lease
Manufacturer or Dealer
Other
Income Types
Finance Income
• Recognized using the implicit rate
after recognizing an equal amount of
finance income to offset initial direct
costs incurred in the period
Profit or Loss
• PV of minimum lease payments or
fair value less (carrying cost less
unguaranteed residual value)
Finance Income
• Constant rate of return
Initial Direct
Costs
Initial direct costs are added to the net
investment and recognized over the
term
• Except negotiating and arranging
costs
Included in the initial measurement of
finance income receivable through
implicit interest rate
Residual Value Reviewed regularly
If reduction in value:
• Change accounting using new
estimate
• The reduction in net investment is
charged to income
Same as manufacturer or dealer
28
Lessor –Finance Lease
Manufacturer or Dealer Other
Presentation
Receivable equal to the net
investment
Same as manufacturer or
dealer
Disclosure
In addition to IFRS 7:
• Reconciliation between
gross investment and the
PV of receivables
• Total contingent rents
recognized as income
during the period
• General description of
leasing arrangements
• Gross investment and the
PV of min lease payments
In addition to IFRS 7:
• Reconciliation between
gross investment and the
PV of receivables
• Total contingent rents
recognized as income
during the period
• General description of
leasing arrangements
• Gross investment and the
PV of min lease payments
29
Lessor – Direct Financing and Sales-type Lease
Direct Financing
Sales-Type
Lessor
Role
Financial intermediate
Manufacturer or
dealer
Income
Types
Finance Income
•Recognized at a constant
rate except initial direct
expenses
Profit or Loss
Finance Income
•Recognized at a
constant rate
30
Lessor – Direct Financing and Sales-type Lease
Direct Financing
Sales-Type
Initial and
continuing
investment
• Minimum lease payments
receivable less any executory
costs and related profit therein;
• The unguaranteed residual value
of the lease property accruing to
the lessor;
• Unearned finance income, after
deducting initial direct costs,
remaining to be allocated to
income over the lease term;
• The investment tax credit
remaining to be allocated to
income over the lease term; and
• Future income taxes as a result of
the lease, when predictable with
reasonable assurance
Same as Direct Financing
Initial Direct
Costs
Expensed as incurred and portion
of unearned income is recognized
Expensed at inception of
lease
31
Lessor – Direct Financing and Sales-type Lease
Direct Financing
Residual
Value
Presentation
Disclosures
Sales-Type
Reviewed annual
• Same as Direct
If decline:
Financing
• change accounting using new
estimate
• The reduction in net
investment is charged to
income
• An upward adjustment is not
made
• Net investment is shown
• Same as Direct
separate from other assets.
Financing
• Net investment shall be
segregated between current
and long-term portions in a
classified balance sheet
• Net investment and implicit
• Same as Direct
interest rate
Financing
32
Card Question #3
In addition to the facts in Card Question #2, assume that the credit risk of the
lease is normal, unreimbursable costs to the lessor are $1,345 and the
truck is sitting on the lessor’s books at $15,000.
How should Truck Corp. classify the lease under ASPE?
Test 1: Are any of the Lessee’s capital lease criteria met?
• Yes, based on card question #1 answer
Test 2:Is the credit risk associated with the lease normal?
• Yes, the credit risk of the lease is normal
Test 3: Are the unreimbursable costs to the lessor estimable?
• Yes, unreimbursable costs to the lessor are $1,345
Test 4: Does Leased Asset Value = Lessor’s Book Value?
• No, Book Value is $15,000 and the Fair Value is $20,000 according to Card
Question #2
Conclusion?
Sales-Type Lease
Card Question #3 (cont’d)
What are the entries to record the lease on Truck Corp.’s
books?
• Dr. Lease Payments receivable
23,747.86*
• Dr. Cost of Goods Sold
15,000
• Cr. Inventory-Truck
15,000
• Cr. Sales
20,000
• Cr. Unearned interest income
3,747.86
*(3*5,582.62+7,000)
Sale and Leaseback Transaction – IAS 17
A sale and leaseback transaction involves the sale of an asset
and the leasing back of the same asset. The lease payment and
the sale price are usually interdependent because they are
negotiated as a package
Disclosures: Provisions of agreement or terms of sale leaseback
agreement
35
Sale and Leaseback Transaction – ASPE 3065
When there is interdependence between the sales and lease terms and inability to
separate the sale and lease, it is a sale-leaseback transaction.
Exception: When the leaseback is of a portion remaining use of the property sold,
it may be possible to separate the accounting aspects of the sale and the lease.
(i.e. one floor of an tower, or lease is three years of a ten year useful life).
Disclosure: No guidance provided
36
Impairment of Lease Receivables
IAS 17:
• In accordance with IAS 36
ASPE 3065:
• Indication of impairment?
• Carrying amount reduced to the greater of:
• PV of future cash flows
• Amount realizable by selling the lease at the beginning
of the period
• Amount realizable by exercising rights to the property
(net of costs to exercise those rights)
• Impairment can be reversed if circumstances
change
• Recognized in net income
IFRIC 4: Determining Whether An Arrangement Contains a
Lease
When to use IFRIC 4?
When an entity enters into an
arrangement of transaction(s)
not in the legal form of a lease
but it conveys a right to use an
asset for a series of payments.
Helps:
(a) determining whether it is a
lease,
(b) when assessment or
reassessment of arrangement
should be made, and
(c) how payments for the
lease should be separated
from other elements
When Not to use IFRIC 4?
When it relates to arrangements
specifically excluded in IAS 17
or public-to-private service
concession arrangements under
IFRIC 12.
Does the Arrangement Contain a Lease?
Is fulfillment of the arrangement dependent
on use of specific asset(s)?
Yes
No
No
Not
Lease
Yes
Lease
Does it convey right to use asset? One of:
• Right to operate in desired manner and control more than
insignificant amount of output
Right to control physical asset and controls more than
insignificant amount of output
Other parties cannot take more than an insignificant
amount of output during term and price paid by purchaser
per unit is not fixed or equal to market price
When should assessment/reassessment take place?
Assessment date should be the same as IAS 17. A reassessment
after the inception of the arrangement is made only if any one of
the following conditions is met (using facts as of date of
assessment):
• There is a change in the contractual terms, unless the change only
renews or extends the arrangement.
• A renewal option is exercised or an extension is agreed to by the
parties, (where renewal/extension was not included in lease term. A
renewal/extension of the arrangement with no modification of terms
shall be evaluated under Topic A only with respect to the renewal or
extension period.
• There is a change in the determination of whether fulfillment is
dependent on a specified asset.
• There is a substantial change to the asset
How Should Payments Be Accounted For?
Is it practical to separate payments for lease and other
elements?
Yes
Estimate lease
payments with
leases with
comparable assets,
OR
Estimate other
elements with
comparable
arrangements and
deduct from total
No
If finance Lease: recognize an asset and a liability at an
amount equal to the fair value of the underlying asset.
The liability is to be reduced as payments are made and
an imputed finance charge on the liability recognized
using the purchaser's incremental borrowing rate of
interest.
If operating Lease: treat all payments under the
arrangement as lease payments but
-disclose those payments separately from minimum lease
payments of other arrangements that do not include
payments for non-lease elements, and
-state that the disclosed payments also include payments
for non-lease elements in the arrangement.
SIC 27 Interpretation: Evaluating the substance of
transactions involving the legal form of a lease
• When an Entity entered into a transaction or an arrangement with
unrelated party/parties (an Investor) that involves the legal form of
a lease, SIC 27 will provide guidance on:
• (a)how to determine whether a series of transactions is linked and
should be accounted for as one transaction;
• (b)whether the arrangement meets the definition of a lease under IAS
17; and, if not,
– (i)whether a separate investment account and lease payment
obligations that might exist represent assets and liabilities of the Entity
– (ii)how the Entity should account for other obligations resulting from
the arrangement; and
– (iii)how the Entity should account for a fee it might receive from an
Investor.
Whether it is a transaction:
• Treated as one transaction when: A series of transactions that involve
the legal form of a lease is linked and the overall economic effect cannot
be understood without reference to the series of transactions as a
whole.
• If one transaction: Accounting needs to reflect the substance of the
arrangement and all aspects needs to be evaluated, with weight given
to those aspects that have an economic effect.
Is Arrangement a Lease?
Indicators that individually demonstrate that an arrangement may not
involve a lease under IAS 17 include:
• (a)Entity retains all the risks and rewards incident to ownership of an
underlying asset and enjoys substantially the same rights to its use as
before the arrangement;
• (b) the primary reason for the arrangement is to achieve a particular tax
result, and not to convey the right to use an asset; and
• (c) an option is included on terms that make its exercise almost certain
If not a Lease:
Indicators that collectively demonstrate that a separate investment
account and lease payment obligations do not meet the definitions
of an asset and a liability and shall not be recognised by the Entity
include:
• Entity not able to control the investment account for own objectives and
is not obligated to pay the lease payments.
• the Entity has only a remote risk of reimbursing the entire amount of any
fee received from an Investor and possibly paying some additional
amount, or, when a fee has not been received, only a remote risk of
paying an amount under other obligations and
• (c) other than the initial cash flows at inception of the arrangement, the
only cash flows expected under the arrangement are the lease
payments that are satisfied solely from funds withdrawn from the
separate investment account established with the initial cash flows.
If not a Lease:
Indicators that individually demonstrate that recognition of the entire
fee as income when received, if received at the beginning of the
arrangement, is inappropriate include:
• (a) obligations either to perform or to refrain from certain significant
activities are conditions of earning the fee, and therefore execution of a
legally binding arrangement is not the most significant act;
• (b)limitations are put on the use of the asset that have the practical
effect of restricting the ability to use the asset;
• c)the possibility of reimbursing any amount the fee and paying some
additional amount is not remote.
• The fee shall be presented in the statement of comprehensive income
based on its economic substance and nature.
Exposure Draft:
Existing models require classification into finance or operating lease, leading to
lack of comparability due to clear distinction between the two. In the future,
guidance is moving towards all leases being classified as capital/finance.
Main Proposal:
• Lessee: recognize asset representing rights to use leased term and liability
to make payments.
• Lessor: recognize its right to receive lease payments and would either i)
recognize a lease liability while continuing to recognize the underlying asset
or ii) derecognize the rights in the underlying asset.
• Assets and liabilities are recognized as the longest possible lease term that
is more likely than unlikely, using an expected outcome technique to reflect
the lease payments, and updated when there are changes in facts that make
it significantly different from prior period.
• Changes for Lessees: If they currently account for it as operating leases
(recognize under the current period), they will be required to recognize the
assets and liabilities under proposal.
• Changes for Lessor: accounting is very different - will be either derecognized
or recognize asset and liability for underlying asset
47
REAL EXAMPLES OF FINANCIAL STATEMENTS
WESTJET
• Quarterly Report :
http://www.westjet.com/pdf/investorMedia/financialReports/westjet2010-q3-financial-statements.pdf
• Annual Report 2009 :
http://www.westjet.com/pdf/investorMedia/financialReports/WestJet2009
AR_financialReport.pdf
No. Under ASPE,
this condition alone
is not sufficient
evidence that
substantially all the
benefits and risks of
ownership have
been transferred to
the lessee, because,
in all leasing
agreements, lessee
either directly or
LESSOR
indirectly pays for
these costs.
The Terms of the Lease Are
Right!
LESSEE VS
A) If the implicit interest
rate used to calculate
the lease payment <
incremental borrowing
rate
Which of the following
is not a test of lease
capitalization, under
ASPE and IFRS?
B) If the PV of minimum
lease payments covers
substantially all of the
FV of the leased asset
C) If the lease term is
≥75% of the leased
property’s economic life
D) If the leased assets
need to be modified in
order to be usable by
someone other than the
lessee
Why must the remaining
unreimburseable costs to
the lessor be estimable in
order for the lessor to
classify the lease as a
Sales-Type or Direct
Financing lease?
If such costs are not
reasonably
estimable, the lessor
may retain
substantial risks in
connection with the
leased property.
Since substantially
all of the risks and
rewards of
ownership have not
been transferred to
the lessee, the
lessor classified the
lease as an
Operating lease.
A)
Change in realizable
value of the leased
property
B)
Subsequent to lease
inception, which of the
following changes will
always result in the
lease classification
being changed?
Change in economic
life of the leased
property
C)
Change in provisions,
renewals or extensions
of the lease
D)
All of the above
E)
None of the above
A)
True
Relating to Lessee
Perspective : Contingent
rent is treated differently
under ASPE than IFRS?
B)
False
C)
It Depends
A)
Fair value if Fair
Value > PV of Min
Lease Payments
Relating to Lessee
Perspective : Under IAS
17, the amount that
should be recognized as
an asset and liability at
inception of the finance
lease is:
B)
PV of Min Lease
Payments if Fair
Value > PV of Min
Lease Payments
C)
Undiscounted lease
payments
D)
None of the above
A) Profit or Loss
B) Finance
From the Lessor’s
Perspective: What are
the different types of
incomes for a
manufacturer or dealer
under IFRS?
C) Rental Income
D) A and B
E) All of the above
A)
Net Investment
B)
Undiscounted lease
payments
Under IFRS, for a
lessor, the receivable is
equal to?
C)
Discounted lease
payments
D)
Undiscounted lease
payments less direct
costs
A)
Defer profit or loss
and amortize over
useful life
B)
Under IAS 17, for a sale
and leaseback transaction
where the lease is
classified as an operating
lease and the sales price
is equal to the fair value of
the leased asset:
Defer profit or loss
and amortize over
lease term
C)
Recognize gain or loss
immediately in the P&L
D)
None of the above
A)
Right to control physical
and controls more than
insignificant amount of
output
Under IFRIC 4: Which of
the following factors do
not convey a right to use
the asset?
B)
Right to operate in
desired manner and
control more than
insignificant amount of
output
C) Other parties cannot
take more than an
insignificant amount of
output during term and
price paid by purchaser
per unit is fixed or equal
to market price
If a dealor lessor engages
in an operating lease, how
is the selling profit on the
lease calculated?
Trick Question! There
is no selling profit
because an operating
lease is not the
equivalent of a sale.
What is the journal entry
for a lessee for a lease
payment under an
operating lease?
Word Bank: Lease
expense, Revenue, Cash,
Amortization of lease
payment, Deferred lease
payment
Dr. Lease expense
Cr. Cash
References for Power Point
Weidman, C. (2010). ACC 611 / AFM 504. Waterloo, Ontario, Canada.
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