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33 Cards in this Set
- Front
- Back
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Sales-type and direct-financing lease - Gross investment formula |
Minimum lease payments (gross) + Unguaranteed residual value = Gross investment
-minimum lease payments include periodic lease payments, plus any bargain purchase option or guaranteed residual value
-recorded as lease payments receivable on lessor's books |
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Sales-type lease and direct-financing lease - Net investment formula |
Minimum lease payments + Unguaranteed residual value = Gross investment x PV = Net investment |
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Sales-type lease and direct-financing lease - Unearned interest revenue (contra-lease receivable) formula |
Gross investment - (Net investment) = Unearned interest revenue
-recognized over life of lease using effective interest method
-included in balance sheet as deduction from gross investment (lease receivable - unearned interest revenue = net investment reported on balance sheet) |
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Sales-type lease - Cost of goods sold formula |
Cost of asset - (PV unguaranteed residual value) = COGS
-Cost of leased asset includes any initial direct costs (i.e., legal fees or commission to lessor) |
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Sales-type lease - Sales revenue formula |
Cost + Profit = PV = Selling price = FV
-PV of minimum lease payments is recorded as sales revenue (includes PV of guaranteed residual value) |
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Journal entry to record sales-type lease |
DR: Lease payments receivable CR: Unearned interest income CR: Sales revenue
DR: Cost of goods sold CR: Inventory (asset sold) |
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Journal entry to record direct-financing lease |
Dr: Lease payment receivable (gross investment) CR: Unearned interest revenue |
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Direct-financing lease - PV of leased asset |
PV = carrying amount of receivable = cost of asset sold |
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Sale-leaseback profit or loss |
FV (sales price) - (Book value) = Profit or loss on sale |
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Sale-leaseback - Operating lease excess profit
U.S. GAAP only |
Sales price - (Asset NBV) = Tentative gain - (PV of min. lease payments) [give back] = Excess gain [keep] |
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Sale-leaseback - Capital lease excess profit
U.S. GAAP only |
Sales price - (Asset NBV) = Tentative gain - (Leaseback asset) [give back] = Excess gain [keep]*
* will be same as operating lease unless leaseback asset is recorded at the lower FV
-leaseback asset is lesser of: 1. FV of leased property 2. PV of min. lease payments
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How does seller-lessee record gain when "substantially all" rights are retained?
U.S. GAAP only |
When PV of rental payments is ≥ 90% of FV of property: -Defer entire gain
-These leases are usually recorded as capital leases |
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How does seller-lessee record gain when less than "substantially all" but greater than "minor" rights are retained?
U.S. GAAP only |
When PV of rental payments is less than 90% of FV of property, but greater than 10%: -Defer gain up to PV of min. leaseback payments (operating lease) OR capitalized asset (capital lease) -Gain in excess is recognized immediately |
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How does seller-lessee record gain when a minor portion of rights is retained?
U.S. GAAP only |
When PV of rental payments is ≤ 10% FV of property: -Recognize gain or loss at time of transaction |
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How does seller-lessee record a real economic loss?
U.S. GAAP only |
When FV of property is < BV: -Recognize loss immediately (BV - FV) |
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How does seller-lessee record an artificial loss?
U.S. GAAP only |
When sales price is < FV: -Defer loss and amortize over leaseback period |
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How are deferred gains amortized in a capital leaseback transaction?
U.S. GAAP only |
-Amortized in proportion to amortization of leased asset -recognized as "unearned profit (loss) on sale-leaseback -"unearned profit (loss) on sale-leaseback" is treated as a valuation account of leased-back asset |
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How are deferred gain amortized in an operating leaseback transaction?
U.S. GAAP only |
-amortized in proportion to gross rental expense over life of lease -recognized as "unearned profit (loss) on sale-leaseback -"unearned profit (loss) on sale-leaseback" is reported as deferred credit (or debit) in balance sheet |
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How do you account for profit on a finance sale-leaseback under IFRS? |
-Any profit is deferred and amortized over lease term |
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How do you account for profit on a capital sale-leaseback under IFRS when:
Sales price = FV |
Any profit or loss is recognized immediately |
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How do you account for profit on a capital sale-leaseback under IFRS when:
Sales price > FV |
Any profit is deferred and amortized over period asset is expected to be used |
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How do you account for profit on a capital sale-leaseback under IFRS when:
Sales price < FV |
Any profit or loss is recognized immediately, except if loss is compensated for by future lease payments at below market price, loss should be deferred and amortized over period asset is expected to be used |
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How is a sale-leaseback accounted for by the purchaser-lessor? |
-Acquisition of asset accounted for as a purchase -Operating lease treated as operating lease -Capital lease treated as direct-financing lease |
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What is the amortization period for bonds under U.S. GAAP? |
Bond premiums and discounts are amortized over the period the bonds are outstanding (i.e., from date bonds are sold) |
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What is the amortization period for bonds under IFRS? |
Bonds premiums and discounts are amortized over the expected life of the bond (not contractual life) |
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Bond interest expense using SL method |
(Face value x stated int. rate) - (Premium amortization) OR + discount amortization |
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Bond interest expense using effective interest method |
Carrying value at beginning of period x Effective interest rate |
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U.S. GAAP treatment of convertible bonds with detachable warrants |
Issuance price is allocated to the bonds with no recognition of the conversion feature |
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IFRS treatment of convertible bonds with detachable warrants |
Recognize both a liability (bond) and an equity component (conversion feature)
Bond liability = fair value Equity = actual proceeds received - FV of liability |
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Convertible bonds - Book value method: Calculation of APIC |
Bond's carrying value - stock's par value - conversion costs |
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Convertible bonds - Market value method: Calculation of APIC |
Stock market price -stock's par value |
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Convertible bonds - Market value method: Calculation of gain or loss |
Stock market value - bond's book value |
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Bond carrying value |
Face amount - Unamortized discount + Unamortized premium - Unamortized issue cost reported as asset (GAAP) |
