AC2101 S1 2014 Seminar 5 Leases (Anil)

AC2101 S1 2014 Seminar 5 Leases (Anil) - AC2101 Accounting...

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1 AC2101 – Accounting Recognition and Measurement Anil J N Shukla Adjunct Associate Professor Semester’1’2013-14’ presented by Seminar 5 Lease Accounting - II 2 Recap:’Operating’vs.’Finance’Lease’ * For’ lessor’ * Leased’asset’remains’in’ lessor±s’books’ à ’ Depreciate’ * ALP’=’rental’ income’ * For’ lessee’ * ALP’=’rental’ expense’ * For’ lessor’ * Leased’asset’replaced’by’ lease’ receivable’ * ALP’=’interest’income’+’ receivable’collected’ * For’ lessee’ * Leased’asset’&’liability’ recognized’in’lessee±s’books’ * Leased’asset’ à ’ Depreciate’ * ALP’=’Interest’expense’+’ liability’repayment’ Operating Lease (Rental) Finance Lease (Asset sale) See write-ups on operating and finance leases in Seminar Outline.
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2 3 REVIEW’ 1. Lessor’&’lessee’in’a’lease’arrangement’ will’always’ classify’it’as’ the’ same’kind’ of’lease’(i.e.,’both’as’operating’lease’or’both’as’ Fnance’lease)’ 2. Lessor’&’lessee’in’a’lease’arrangement’ will’always’ classify’it’as’ di±erent’kinds’ of’lease’(i.e.,’one’as’operating’lease,’the’other’ as’Fnance’lease)’ 3. Lessor’&’lessee’in’a’lease’arrangement’ will’usually’ classify’it’as’ the’ same’kind’ of’lease’(i.e.,’both’as’operating’lease’or’both’as’ Fnance’lease)’ but’not’always’ 4 Which’of’the’following’statements’is’ true?’
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3 5 What’could’cause’lessor’&’lessee’to’ classify’a’lease’diFerently?’ 1. Whether’asset’title’passes’at’end’of’lease’ 2. Whether’BPO’exists’ 3. Whether’lease’term’is’a’major’part’of’asset±s’useful’life’ 4. Whether’MLP’amount’is’the’same’for’lessee’&’lessor’*’ 5. Whether’lessee’&’lessor’use’the’same’discount’rate’for’MLP’*’ 6. Whether’asset’is’of’a’specialized’nature’ This means that lease classification tests must be conducted for BOTH lessor & lessee. * Relate to whether PV(MLP) is substantially all of asset’s FV - Note’on’Residual’Values’ - Note’on’leasehold’land’and’building’ - Note’on’investment’property’under’leases’ - Quick’review’of’²RS40’Investment’Property’ - Sales’Type’Lease’ - Sale’and’Leaseback’Arrangements’ 6 Seminar’5’Agenda’
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4 GRV’-’ Lessor’ * G RV’taken’into’account’in’determining’ ’( i)’ALP,’(ii)’MLP,’and’(iii)’depreciation’ * Higher’of’estimated’RV’and’GRV’to’be’used’by’ lessor’ * If’FV’of’machine’at’end’of’lease’<’GRV,’ ’ Dr’Machine’(FV’at’end’of’lease)’ ’ Dr’Cash’(Lessee’pays’to’make’up’the’di±erence)’ ’ Cr ’ Lease’Receivable’(at’GRV)’ 7 Residual’Value:’ Guaranteed’RV GRV’-’ Lessee’ * G
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AC2101 S1 2014 Seminar 5 Leases (Anil) - AC2101 Accounting...

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