far combined assignment (1) (1)

far combined assignment (1) (1) - CAEA2215 FINANCIAL...

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CAEA2215 Prepared for: DR. NORHAYAH BINTI ZULKIFLI GROUP MEMBERS: HUI ZHAN MING (CEA090031) CHONG YIN YEE (CEA090014) LIEW ZEE MAN (CEA090046) TAN SHI YEE (CEA090124)
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Analysis Case 15-1 1. When FedEx’s management says some leases “qualify as off-balance-sheet” financing, it means the fact that when assets are acquired under operating leases, accounting standards do not require lessee to record a liability as would be the case under a capital lease. According to the FRS 117, capital lease is a lease that substantially all the risks and rewards incident to ownership from the lessor to the lessee. However, the operating lease is a lease that does not transfer substantially all the risks and rewards incident to ownership from the lessor to lessee. Thus, the financing escapes the balance sheets that mean do not record in balance sheet. Firstly, FedEx does not transfer its ownership at the end of lease term. Besides that, FedEx company also does not contain any bargain purchase option (BPO) which is a provision in the lease contract that gives the lessee the option of purchasing the leased property at the a bargain price. Bargain purchase option is the exercise of the option appears reasonably assured at the inception of the lease with a price that sufficiently lower than the expected fair value of the property. The lease term of FedEx’s asset does not achieve the major part of the asset’s expected economic life. The major part of the lease term in FedEx for of the asset’s economic life which does not achieve by it that mean the lease term is less than 75%. The lease term for FedEx is 40% only that is 6 years dividend by 15 years and multiply with 100%. “The weighted-average remaining lease term of all operating leases outstanding at May 31, 2010 was approximately six years .” (annual
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report pg 51). “The majority of aircraft costs are depreciated on a straight-line basis over 15 to 18 years. ”(annual report pg 46). The present value of minimum lease payment (PVMLP) which amount is not achieve to or at least substantially the major part of the asset’s fair value or equal to asset’s fair value that is 90%. The present value of minimum lease payment for FedEx just is 85.98% which is $141 million divided by $164 million and multiply with 100%. FedEx also does not have the leased assets of specialized nature. These are the classification of lease which is done by the FedEx. Thus, most of FedEx’s leases do not meet any of the four classification criteria that would cause the lease to be capitalized.
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2. In Note 6 on the “Lease Commitments” indicates that at 31st May 2010, the present value of the future minimum lease payments for the capital lease obligations was $14 billion.
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far combined assignment (1) (1) - CAEA2215 FINANCIAL...

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