Final ans - CAEA2215 FINANCIAL ACCOUNTING & REPORTING...

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CAEA2215 FINANCIAL ACCOUNTING & REPORTING III
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Prepared for: DR. NORHAYAH BINTI ZULKIFLI GROUP MEMBERS: HUI ZHAN MING (CEA090031) CHONG YIN YEE (CEA090014) LIEW ZEE MAN (CEA090046) TAN SHI YEE (CEA090124) 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.
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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. A price sufficiently lower than the expected fair value of the property, that the exercise of the option appears reasonably assured at the inception of the lease which is the definition of bargain purchase option also. 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 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. As disclosed in “Contractual Cash Obligations” and Note 6 to the accompanying consolidated financial statements at 31 May 2010, FedEx had approximately $14 billion that on an undiscounted basis of the future commitments for payments under operating leases. At 31st May 2010, the weighted-average remaining lease term of all operating leases outstanding was approximately six years. Besides that, the future commitments for operating leases are not reflected as a
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Final ans - CAEA2215 FINANCIAL ACCOUNTING & REPORTING...

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