8 - Leases.

Lease definition.

Contract that gives the right to use an underlying asset for a period of time in exchange for consideration.

Lessor definition.

The entity that provides the right-of-use asset and - in exchange - receives consideration.

Lessee definition.

The entity that obtains use of the right-of-use asset and - in exchange - transfers consideration.

A contract contains a lease if it gives the right to control the...

the use of an identified asset | for a period of time | in exchange for consideration.

A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For this to be the case, the contract must give customer two rights:

The right to substantially all of the economic benefits from use of the identified assets and | the right to direct the use of the identified asset.

Lessee accounting - initial treatment. Basically, the lessee should recognize a liability and a right-of-use asset at the commencement of the lease:

Fixed payments | Variable payments, | Purchase options* | Termination penalties. | Residual Value guarantee*.

The CA of the lease liability is increased by ...?

by the interest charge.

The CA of the lease liability is increased by the interest charge. This interest is also recorded in...?

in the SPL.

The CA of the lease liability is reduced by...?

by cash repayments.

The right-of-use asset is normally measured using ... model. This means it is measured at ... less ......

using cost model. This means it is measured at its initial cost less accumulated depreciation and impairment losses.

Exceptions. The lessee can choose to recognise the lease payments in the PoL on a straight line basis if the lease is ...?

is short-term* | or of a low value.

Leases must be classified at inception as either...

a finance lease | or an operating lease.

IFRS 15 gives the following indications that the risks and rewards of ownership have transferred to the lessee:

Ownership is transferred at the end of the lease.| Lessee has the option to purchase the asset at the end of a lease for less than FV.| Lessee can continue to lease the asset at the end of a lease for less than market rents.

Under a finance lease, the lessor must:

Derecognise the leased asset. | Recognise a lease receivable at the PV of the minimum lease payments*. | Recognise income on the lease receivable using the rate implicit in the lease.

Under a operating lease, the lessor must:

Continue to recognise | and depreciate the leased asset. | Recognise lease rental income in PoL on a straight line basis.

The treatment of a sale and leaseback depends on whether whether the 'sale' represents the...

whether the 'sale' represents the satisfaction of a performance obligation.

Accounting treatment of for seller-lessee, if transfer is NOT a sale.

Continue to recognise asset. | Recognise a financial liability equal to proceeds received.

Accounting treatment for a seller-lessee if transfer IS a sale.

Derecognise the asset. | Recognise a right-of-use asset as the proportion of the previous CA.*| Recognise a lease liability. | A PoL on disposal will arise.

Accounting treatment for buyer-lessor if transfer is NOT a sale.

Do not recognise the asset. | Recognise a financial asset equal to transfer proceeds.

Accounting treatment for buyer-lessor if transfer IS a sale.

Account for the asset purchase. | Account for the lease by applying lessor accounting requirements.

Lessee accounting - initial treatment. Basically, the lessee should recognize two categories of items:

Liability at present value at TOTAL of... | Right-of-use asset at TOTAL of...

Finance lease definition

Where the risk and rewards of ownership are transferred to the lessee.

Operating lease definition:

A lease which is not a finance lease.