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Unformatted text preview: is deferred and
amortized. A real loss on the sale of the property is recognized
A real loss on the sale of the property is recognized
immediately. 15-53 Slide 54 Sale-Leaseback Arrangement - Example
Teledyne Distribution Center was in need of cash. Its solution: sell its
four warehouses for $900,000, then lease back the warehouses to
obtain their continued use. The warehouses had a carrying value on
Teledyne's books of $600,000 (original cost $950,000). Other
1.The sale date is December 31, 2011.
2.The noncancelable lease term is 10 years and requires annual
payments of $133,155 beginning December 31, 2011. The estimated
remaining useful life of the warehouses is 10 years.
3.The annual rental payments (present value $900,000) provides the
lessor with a 10% rate of return on the financing arrangement.
Teledyne's incremental borrowing rate is 10%.
4.Teledyne depreciates its warehouses on a straight-line basis. 15-54 Slide 55 Sale-Leaseback Arrangement - Example
Lessee (seller) prepares following entries: Lessor (buyer) records the lease in accordance
with the usual lease guidelines.
with 15-55 Slide 56 U. S. GAAP vs. IFRS
Lease accounting under U.S. GAAP and IFRS provides a
good general comparison of “rules-based accounting” as
U.S. GAAP often is described and “principles-based
accounting” which often is the description assigned to IFRS. • Lease classification rules. • Situations that normally would lead to
classification as a capital lease are: 1. Same as IFRS. 2. 75% or more of assets life. 1. Contains a BPO 3. “Substantially all means
90% or more. 2. Term is “major portion” of asset’s life. 4. Title transfers. 3. PV of MLP greater than “substantially
all” of the fair value of the asset.
4. Other circumstances impact
classification. 15-56 Slide 57 Joint Project of FASB and IASB The FASB and the IASB initiated a joint project to develop a
new approach to lease accounting that would ensure that
assets and liabilities arising under leases are recognized in the
statement of financial position. Proposed new model:
◦ Based on the idea that an asset = the right to use a
◦ “Right-to-use” model All leases should be capitalized. 15-57...
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- Spring '13