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CHAPTER 4: Leases
Lessor the owner of the leased property .
- nagpapaupa
Lessee the one who receives the right to
use the leased property.
- nangungupa
1. The LESSEE acquires ONLY the right
to the USE of the leased property.
2. The LESSOR retains the ownership
or title of the leased property.
3. Lease classification is made at the
INCEPTION of the lease.
CLASSIFICATION:
1. Operating lease
2. Finance lease
=========================
OPERATING LEASE
Lessors viewpoint
1. Lease bonus
paid by the
lessee should
be
recognized
as an
expense over
the lease
term.
2. Lease bonus
granted by
the lessor is
treated as a
deduction
from rent
expense over
the lease
term.
3. Contingent
rentals are
added to rent
expense in
the period in
which they
arise.
be
recognized
as a revenue
over the
lease term.
2. Lease bonus
granted by
the lessor is
treated as a
deduction
from rent
revenue over
the lease
term.
3. Contingent
rentals are
added to rent
revenue in
the period in
which they
arise.
=========================
FINANCE LEASE
[Lessees books]
- Initially recognize finance leases as
assets and liabilities at the LOWER
of [leased assets fair value vs.
present value of the minimum lease
payments]
If the lease contains:
1. BARGAIN PURCHASE OPTION, its
present value shall be included in
the leased assets cost.
2. GUARANTEED RESIDUAL VALUE, its
present value shall be included in
the leased assets cost.
3. In no case should: Capitalized cost >
fair value of the leased asset at the
INCEPTION of the lease.
For computation for the present value
factors:
1. Lessors implicit interest rate
1
Financial Accounting II
Prepared by: BCSV
Manufacturers/
Other
terms:
Lessor:
Asset for
lease
Revenue
earned
Financing
Lease
Simple
financing
lease
Financial
institutions
Not inventory
(still to be
bought)
Interest
revenue
Dealers lease
Sales-type lease
Dealer or
manufacturer
Inventory
(Finished
goods)
Gross profit &
interest
revenue
Financial Accounting II
Prepared by: BCSV
2. MANUFACTURERS LEASE
- The lessor records the lease as a sale
of inventory on a deferred payment
contract.
- The lessor recognizes (in full) an
immediate profit (manufacturers
profit) at the commencement of the
lease.
- Sales price = FMV, the PV of MLP.
- Executory costs are charged to
expense when incurred.
- Cost of negotiating and arranging a
lease is charged to expense when
incurred (Addition to CGS [normal]
or charge to Selling expense).
MLP
BPO
GRV
URV
-
Gross:
PV of
Sales
XX
XX
XX
XX
X
X
X
PV of
CGS
(X)