AC2101 S1 2014 Seminar 4 Leases (Anil).pptx

27 finance lease lessee lessee lease asset

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Unformatted text preview: 4. PV of minimum lease payments (“MLPs”): close to asset’s fair value? (recovery of investment ≥ 90% rule) 5. Asset: speed nature, only lessee can use it? 18 9 Classification of Leases If any one of the classification criteria is met, it is a finance lease. See flowchart in p. 269 of NCKL 19 Other Indicators of Substantial Transfer of Ownership Risks & Rewards 1.  Lessor’s losses borne by lessee upon lessee’s cancellation 2.  G/L from fluctuation of residual fair value accrues to lessee 3.  BRO exists If any one of the indicators is present, it is a finance lease. FRS 17:11 20 10 21 Operating Lease *  An operating lease will be accounted for as if it is a rental transaction *  Refer to write- up on operating leases in seminar outline *  Take note of JEs for lessee & lessor! 22 11 Accounting Operating Lease (Rental) Lessor’s books Lessee’s books *  Dr Cash Cr Rental income *  Dr Depr expense Cr Accum Depr *  Dr Rental expense Cr Cash *  No depreciation charge 23 Summary for Operating Lease *  Summarising Operating Lease Note in Seminar Outline Lessor Balance Sheet Leased asset less Accumulated Depreciation Income Statement Rental Income, Depreciation Lessee No asset Rental expense 24 12 Seminar Question -   Question 1 -   Application of FRS 17 25 26 13 Finance Lease *  A finance lease will be accounted for as if lessee buys over the asset with financing provided for by lessor *  Refer to write- up on finance leases in seminar outline *  Take note of JEs for lessee & lesso...
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This document was uploaded on 02/10/2014.

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