AC2101 S1 2014 Seminar 4 Leases (Anil).pptx

Para4 a nance lease is a lease that transfers

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Unformatted text preview: leased asset, the realisation of which by the lessor is not assured, or is guaranteed solely by a party related to the lessor. c. Shared (SRV) (Not in syllabus) *  Proceeds from disposal shared by lessee & lessor in specified ratio Recall from earlier: Minimum lease payments (MLPs) §༊  Sum of Annual Lease Payments (ALPs) + §༊  BPO or Guaranteed Residual Value (GRV) 13 Some Technicalities in FRS 17 For lessor (R) a.  MLPR = ∑(Annual lease payments) + [GRVR or BPO] b.  GRVR = RV guaranteed by Ø།  Lessee, a party related to lessee OR a party unrelated to lessor For lessee (E) a.  MLPE = ∑(Annual lease payments) + [GRVE or BPO] b.  GRVE = RV guaranteed by Ø།  Lessee or a party related to lessee 14 7 Some Technicalities in FRS 17 *  PV of Minimum lease payment (PV of MLP) =MLP discounted at * For lessor: implicit rate * For lessee: implicit rate or lessee’s incremental borrowing rate, if implicit rate is not known 15 Recall from earlier: §༊  What are a finance lease and an operating lease? (para.4) *  A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. *  An operating lease is a lease other than a finance lease 16 8 Classification of Leases *  Classification criteria (FRS 17 para 10): 1. End of lease: lessee gets asset? (transfer of ownership) 2. Bargain purchase option (”BPO”)? 3. Most of useful life: lessee uses asset? (”lease term” ≥ 75% of useful life rule) 17 Classification of Leases *  Classification criteria (FRS 17 para 10):...
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