{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Coming Changes to Lease Accounting F09

Guidance under iasb liability is not re evaluated at

Info icon This preview shows pages 6–11. Sign up to view the full content.

View Full Document Right Arrow Icon
guidance under IASB  Liability is not re- evaluated at each  balance sheet date Use “most likely” lease  term Appears that the new  lease standard will be  less rule based and  require more judgment Lease term would be  re-evaluated at each  balance sheet date and  the liability and asset  accounts would be 
Image of page 6

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Some key differences Current Proposed Contingent rentals are  generally not projected.  Even when based on  an index, the PVMLP is  based on the rental  payments at the current  index (that’s why it is  “minimum” lease  payment computation) Guaranteed residual values  stay on books at “maximum”  value IASB proposes using a  weighted probability  expected value for  contingent rents and  guaranteed residual  values  FASB is leaning toward  a simpler “most likely”  amount for contingent  rentals and guaranteed  residual values
Image of page 7
An example (a variation of Example 3 in the DP) A machine is leased for a fixed term of five years  with an option to extend for two additional years; the  expected life of the machine is 10 years. The lease is  noncancellable, and there are no rights to purchase  the machine at the end of the term and no  guarantees of its value at any point. Lease payments  of CU 35,000 are due each year. No maintenance or  other arrangements are entered into. At the start of the lease, the lessee intends to  exercise the renewal option. The present value of the lease payments over the  seven-year period discounted at the lessee’s 
Image of page 8

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Schedule based on intentions at inception of lease: Period Payment Interest Principal Balance Depr 0 182,223 1 35,000 14,578 20,422 161,801 26,032 2 35,000 12,944 22,056 139,745 26,032 3 35,000 11,180 23,820 115,924 26,032 4 35,000 9,274 25,726 90,198 26,032 5 35,000 7,216 27,784 62,414 26,032 6 35,000 4,993 30,007 32,407 26,032 7 35,000 2,593 32,407 0 26,032 245,000 62,777 182,223 182,223
Image of page 9
What happens if after 3 years they decide to NOT renew?
Image of page 10

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern