Chapter 13 - Solution Manual

Fasb asc 13 7 terminal space and airport facilities

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FASB ASC 13-7 Terminal Space and Airport Facilities Search Terminal Space and Airport Facilities 840-10-25-25 Because of special provisions normally present in leases involving terminal space and other airport facilities owned by a governmental unit or authority, the economic life of such facilities for purposes of classifying the lease is essentially indeterminate. Likewise, the concept of fair value is not
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288 applicable to such leases. Because such leases also do not provide for a transfer of ownership or a bargain purchase option, they shall be classified as operating leases. Leases of other facilities owned by a governmental unit or authority wherein the rights of the parties are essentially the same as in a lease of airport facilities shall also be classified as operating leases. Examples of such leases may be those involving facilities at ports and bus terminals. The guidance in this paragraph is intended to apply to leases only if all of the following conditions are met: a. The leased property is owned by a governmental unit or authority. b. The leased property is part of a larger facility, such as an airport, operated by or on behalf of the lessor. c. The leased property is a permanent structure or a part of a permanent structure, such as a building, that normally could not be moved to a new location. d. The lessor, or in some circumstances a higher governmental authority, has the explicit right under the lease agreement or existing statutes or regulations applicable to the leased property to terminate the lease at any time during the lease term, such as by closing the facility containing the leased property or by taking possession of the facility. e. The lease neither transfers ownership of the leased property to the lessee nor allows the lessee to purchase or otherwise acquire ownership of the leased property. f. The leased property or equivalent property in the same service area cannot be purchased nor can such property be leased from a nongovernmental unit or authority. Equivalent property in the same service area is property that would allow continuation of essentially the same service or activity as afforded by the leased property without any appreciable difference in economic results to the lessee. Leases of property not meeting all of the conditions in paragraph 840-10-25-25 are subject to the same criteria for classifying leases under this Subtopic that are applicable to leases not involving government owned property. Room for Debate Debate 13-1 Team 1 Argue for the capitalization of leases which do not meet the SFAS No. 13 criteria for capitalization SFAC No. 6 defines assets as probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. An asset embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net assets. A lease embodies the transfer of rights to the lessee to use the leased asset. The use of the asset
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