CAPITULO 21 INTERMEDIA - Chapter 21 Accounting for Leases...

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CHAPTER 21 ACCOUNTING FOR LEASES This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each supplement chapter, which can be used to assess and reinforce student understanding of IFRS. ACCOUNTING BY THE LESSEE If Air France (FRA) (the lessee) capitalizes a lease, it records an asset and a liability generally equal to the present value of the rental payments. ILFC (the lessor), having transferred substantially all the benefits and risks of ownership, recognizes a sale by removing the asset from the statement of financial position and replacing it with a re- ceivable. The typical journal entries for Air France and ILFC, assuming leased and cap- italized equipment, appear as shown in Illustration 21-1. Air France ILFC (Lessee) (Lessor) Leased Equipment XXX Lease Receivable XXX Lease Liability XXX Equipment XXX ILLUSTRATION 21-1 Journal Entries for Capitalized Lease Having capitalized the asset, Air France records depreciation on the leased asset. Both ILFC and Air France treat the lease rental payments as consisting of interest and principal. If Air France does not capitalize the lease, it does not record an asset, nor does ILFC remove one from its books. When Air France makes a lease payment, it records rental expense; ILFC recognizes rental revenue. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. In order to record a lease as a finance lease, the lease must be non-cancelable. The IASB identifies the four criteria listed in Illustration 21-2 for assessing whether the risks and rewards have been transferred in the lease arrangement. Chapter 21 Accounting for Leases · 21–1 Capitalization Criteria (Lessee) 1. The lease transfers ownership of the property to the lessee. 2. The lease contains a bargain-purchase option. 1 3. The lease term is for the major part of the economic life of the asset. 4. The present value of the minimum lease payments amounts to substantially all of the fair value of the leased asset. [1] ILLUSTRATION 21-2 Capitalization Criteria for Lessee U.S. GAAP PERSPECTIVE U.S. GAAP for leases uses bright-line criteria to determine if a lease arrangement transfers the risks and rewards of ownership; IFRS is more general in its provisions. 1 We define a bargain-purchase option in the next section.
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21–2 · IFRS Supplement ILLUSTRATION 21-3 Diagram of Lessee’s Criteria for Lease Classification Finance Lease Lease Agreement Operating Lease No No Is There a Transfer of Ownership? Is
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CAPITULO 21 INTERMEDIA - Chapter 21 Accounting for Leases...

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