ACCT2006 Chapter Notes - Chapter 10a: Finance Lease

51 views4 pages

coralskunk937

11 Oct 2018

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Leasing is a means of gaining access to the benefits of an asset without owning the asset. In a lease arrangement, payments are made for the right to use the asset for a specified period of time. A new approach was needed in relation to leases in order to obtain a more faithful representation of a lessee(cid:859)s assets a(cid:374)d lia(cid:271)ilities a(cid:374)d to gai(cid:374) g(cid:396)eate(cid:396) t(cid:396)a(cid:374)spa(cid:396)e(cid:374)(cid:272)y of a lessee(cid:859)s fi(cid:374)a(cid:374)(cid:272)ial le(cid:448)e(cid:396)age a(cid:374)d capital employed. A lease is defined by aasb 16/ifrs 16 as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. The transfer of the right to use is essential in the definition and therefore the guidance for assessing whether a contract is, or contains, a lease, focuses on clarifying the concept of the right to use.

Related Questions

On 1 July 2007 Sadex had entered into two leasing contracts, effective from that date, details of which are as follows:

Contract 1

An operating lease for mobile lifting equipment for use in the finished goods warehouse, at an annual rental of Â£45,000 payable in advance, for a period of six years.

Contract 2

A finance lease for plant, at an annual rental of Â£208,000 payable in advance, for a period of five years. The initial fair value of the plant was Â£800,000. Depreciation is provided at the rate of 20% per annum on a straight line basis, assuming no residual value. The interest rate implicit in the lease is 15.15%

Required

Show how the two leases would be reflected in the financial statements of Sadex for the years ended 30 June 2008 and 2009. Notes to the accounts are not required.

amaranthgoldfish995

Choose the correct answer

32. An essential element of a lease isthat the

a. lessor conveys less than his or her totalinterest in the property.

b. lessee provides a sinking fund equal to oneyearâs lease payments.

c. property that is the subject of the leaseagreement must be held for sale by the lessor prior to the draftingof the lease agreement.

d. term of the lease is substantially equal to theeconomic life of the leased property.

33. What impact does a bargainpurchase option have on the present value of the minimum leasepayments computed by the lessee?

a. There is no impact as the option does not enterinto the transaction until the end of the lease term.

b. The lessee must increase the present value of theminimum lease payments by the present value of the optionprice.

c. The lessee must decrease the present value of theminimum lease payments by the present value of the optionprice.

d. The minimum lease payments would be increased bythe present value of the option price if, at the time of the leaseagreement, it appeared certain that the lessee would exercise theoption at the end of the lease and purchase the asset at the optionprice.

34. The methods of accounting for alease by the lessee are

a. operating and capital lease methods.

b. operating, sales, and capital lease methods.

c. operating and leveraged lease methods.

d. None of these answers are correct.

35. Which of the following is a correct statement of one of thecapitalization criteria?

a. The lease transfers ownership of the property tothe lessor.

b. The lease contains a purchase option.

c. The lease term is equal to or more than 75% ofthe estimated economic life of the leased property.

d. The minimum lease payments (excluding executorycosts) equal or exceed 90% of the fair value of the leasedproperty.

whitewolf712

You Tell Me, Am I a Lease? (USING GAAP NOT IFRS)

Auto Inc. (Auto) is a company based in New York that manufactures automobiles and exports the finished vehicles to Europe. Auto manufactures two models; the most popular model is a four-door sedan (Sedan), and the other is a less common, highly customizable luxury sports car (Luxury Car). Auto contracts Trans-Atlantic Inc. (Atlantic) to ship its products to Europe. Atlantic has a fleet of 10 multi-use shipping vessels, each with capacity for 2,000 vehicles. The terms of the shipping contracts are as follows: â¢ Sedan contract terms: o The term is five years. o MV Manhattan, a ship in Atlanticâs fleet, is dedicated to shipping Autoâs Sedans for the term of the contract. o Auto determines (1) which European ports receive shipments and (2) the order in which deliveries are made to the ports; Auto instructs Atlantic accordingly. o Auto has the option to send the ship below capacity. If the ship is below capacity, Atlantic cannot use the excess capacity to ship products of its other customers. â¢ Luxury Car contract terms: o The term is five years. o Atlantic is required to deliver shipments of Luxury Cars within five weeks of notification from Auto that an order of Luxury Cars is ready for shipping. o Atlantic may choose any ship from its fleet to complete the request. o Auto may provide 250 to 2,000 Luxury Cars in a single request; however, shipping requests of Luxury Car generally do not exceed 500 vehicles in a single request because of the lower production volume and longer manufacturing time of Luxury Car. o Atlantic has the option to use excess capacity to ship products of its other customers. o After notification from Auto that Luxury Cars are ready to ship, Atlantic determines when within the five-week period to ship the cars, as well as the shipping route. Autoâs CFO understands that the new leasing standard has certain provisions that may affect how the company treats contracts of this nature.

Required: Analyze the above and prepare a memorandum addressing the impact (if any) of the new leasing standard on Autoâs shipping arrangements for the following considerations:

1. Determine whether each of Autoâs contracts with Atlantic for Sedan and Luxury Car contains an identified asset.

2. Determine whether each contract conveys the right to control the use of the identified asset to the lessee.

coffeeclam704

ACCT2006 Chapter Notes - Chapter 10a: Finance Lease

Document Summary

Get access

Related Documents

ACCT2006 Chapter Notes - Chapter 10b: Finance Lease, Operating Lease, Book Value

ACCT3321 Lecture Notes - Lecture 4: Gotland Regiment, Finance Lease, Book Value

ACCT3102 Study Guide - Midterm Guide: Finance Lease, Operating Lease, Interest Expense

Related Questions