AC2101 S1 2014 Seminar 4 Leases (Anil).pptx

If there is reasonable certainty that the lessee will

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Unformatted text preview: r! 27 Finance Lease - Lessee *  Lessee *  Lease asset *  Capitalise : lower of Fair Value or PV (MLP) *  May include Initial Direct Costs (i.e. costs that are directly attributable to negotiating and arranging a lease. ) *  Depreciation *  Useful life (if there is reasonable certainty that the lessee will obtain ownership) or lease life (if otherwise) See FRS 17 paras 27, 28 for more details. 28 14 Finance Lease - Lessee *  Lessee *  Lease payable *  Also at lower of Fair Value or PV (MLP) *  Interest expense *  Usually using effective interest rate method (i.e., amortization schedule) *  Discount rate = lessor’s implicit interest rate if known, otherwise, lessee’s incremental borrowing rate See FRS 17 paras 20, 25 for more details. 29 FRS 17 – Finance Lease for Lessee A finance lease gives rise to deprecia2on expense for depreciable assets as well as finance expense for each accoun2ng period. The deprecia2on policy for depreciable leased assets shall be consistent with that for depreciable assets that are owned, and the deprecia2on recognised shall be calculated in accordance with FRS 16 Property, Plant and Equipment and FRS 38 Intangible Assets. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life. 27. 30 15 Lessee should depreciate leased asset over? If it is a finance lease and the leased asset’s title DOES NOT pass to lessee by the end of the lease. 1.  2.  3.  4.  Leased asset’s useful life Lease term Shorter of useful life and lease term...
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