This chapter discusses accounting for leases by lessees. It describes the leasing environment and advantages for lessees. It explains IASB requirements for lessee accounting including capitalizing most leases. It also covers measurement of lease liabilities and assets, subsequent accounting, and provides an example.
This chapter discusses accounting for leases by lessees. It describes the leasing environment and advantages for lessees. It explains IASB requirements for lessee accounting including capitalizing most leases. It also covers measurement of lease liabilities and assets, subsequent accounting, and provides an example.
This chapter discusses accounting for leases by lessees. It describes the leasing environment and advantages for lessees. It explains IASB requirements for lessee accounting including capitalizing most leases. It also covers measurement of lease liabilities and assets, subsequent accounting, and provides an example.
This chapter discusses accounting for leases by lessees. It describes the leasing environment and advantages for lessees. It explains IASB requirements for lessee accounting including capitalizing most leases. It also covers measurement of lease liabilities and assets, subsequent accounting, and provides an example.
The Leasing Environment A lease is a contractual agreement between a lessor and a lessee, that gives the lessee the right to use specific property, owned by the lessor, for a specified period of time. Largest group of leased equipment involves: • Information technology equipment • Transportation (trucks, aircraft, rail) • Construction • Agriculture
Lessee Accounting The lessee • recognizes interest expense on the lease liability using the effective-interest method and • records depreciation expense on the right-of-use asset. This accounting (finance lease) is applied whether the lease is effectively • a purchase of the asset or • when the lessee only controls the use of the asset.
M easurement of the Lease Liability and Lease Asset Lease Term • The fixed, non-cancelable term of the lease. • Bargain-renew al option can extend this period. o which gives the lessee an option to renew the lease for a rental that is lower than the expected fair rental at the time the option becomes exercisable o At the commencement of the lease, the difference between the renewal rental and the expected fair rental must be great enough to make exercise of the option to renew reasonably certain.
Lease Term Q uestion Illustration: Carrefour (F R A) leases Lenovo (C N H) PCs for two years at a rental of $100 per month per computer and subsequently can lease them for $10 per month per computer for another two years. The lease clearly offers a bargain- renewal option;the lease term is considered to be ___ years.
Lease Term Answ er Illustration: Carrefour (F R A) leases Lenovo (C N H) PCs for two years at a rental of $100 per month per computer and subsequently can lease them for $10 per month per computer for another two years. The lease clearly offers a bargain- renewal option;the lease term is considered to be 4 years.
M easurement of the Lease Liability and Lease Asset Lease Payments • Fixed payments. • Variable payments that are based on an index or a rate. • G uaranteed residual value. • Payments related to purchase or termination options that the lessee is reasonably certain to exercise.
M easurement of the Lease Liability and Lease Asset Discount Rate Lessee should compute the present value of the lease payments using the implicit interest rate. • This rate, at commencement of the lease, which causes the aggregate present value of the lease payments and unguaranteed residual value to be equal to the fair value of the leased asset. In the event that it is impracticable to determine the implicit rate, the lessee uses its incremental borrow ing rate.
Subsequent Lease Accounting To illustrate the accounting for a lease using the finance lease method, assume that CN H Capital (N LD) (a subsidiary of CN H G lobal) and Ivanhoe M ines Ltd. (CAN ) sign a lease agreement dated January 1, 2022, that calls for CN H to lease a backhoe to Ivanhoe beginning January 1, 2022. The terms and provisions of the lease agreement and other pertinent data are shown on the next slide.
Lessee Journal Entries at Lease Inception Ivanhoe records the finance lease on its books on January 1, 2022, as: Right-of-Use Asset 95,890.35 Lease Liability 95,890.35
• Ivanhoe records the first lease payment on January 1, 2022,
