Leases- Reviewer PDF

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Summary

Lease – contract or part of contract that conveys the RIGHT TO USE the underlying asset for a period of time in exchange for consideration.Right to Control the use of an Asset 1. Obtain substantially all the economic benefits from the use of he identified asset. 2. Direct the use of the identified a...

Description

IFRS 16: LEASES Lease – contract or part of contract that conveys the RIGHT TO USE the underlying asset for a period of time in exchange for consideration. Right to Control the use of an Asset 1. Obtain substantially all the economic benefits from the use of he identified asset. 2. Direct the use of the identified asset (how and for what)

P.O.V of LESSOR Operating Lease – lease that does NOT TRANSFER substantially all the risks and rewards to ownership of an underlying asset.  Lessor is still the owner & it is a rent transaction.  Lessor shall recognize DEPRECIATION EXPENSE  All Lease payment – INCOME through *straight- line basis if rent income every period is the same. (*silent prob) If each year rent income changes: 1st yr 100k nd 2 yr 150k total: 360k / 3 yrs 3rd yr 110k = 120k annual income Cash received Rent Income Asset (Liab) st 1 100k 120k 20k 2nd (100+150) = 250k (120*2) = 240k (10k) 3rd 360k 360k 0 CONSIDERATIONS: 1. Initial Direct Costs paid by the lessor - added to the Carrying Amount of the asset - recognize as expense over the lease term (amortized base on lease term) ; deferred 2. Executory Costs - costs that are incurred in maintaining the asset (depre, maintenance, taxes etc) - expense as incurred 3. Refundable Security Deposits - liability kasi ibabalik kay lessee at the end of the lease term - NOT recognized as income 4. Lease Bonus - suhol or additional payment by the lessee to obtain the asset - Unearned Revenue = liability - recognized as income over the lease term (amortized)

Finance Lease - TRANSFERS substantially all the risks and rewards of ownership. * Form – Rent but; Substance – is sale; Lease payment is through installment Par. 63 Anyone present below will automatically categorized into a FINANCE LEASE: T – ransfer of ownership (at the end of lease term) O – ption to purchase the asset (*at the inception date it must be reasonably certain that the option will be exercise) *start of contract M – aterial lease term (at least 75% of the useful life) S – ubstantial PV of Lease Payment (substantial if PV of payment is at least 90% of the FV) T & O – will be reverted to the lessee ; no need to guarantee the residual value M & s – will be reverted to the lessor ; need to be guaranteed TWO TYPES OF FINANCE LEASE Direct Finance Lease – engage in financing business (financial institution or bank). As the lessor, we buy merchandise or will help our customer to buy car, house or property and we are the one who will finance it.  Recognized Interest Income or Financing Income na kikitain over the lease term  No dealer profit or gross profit because COST = FV Sales Type Lease – lessor is a manufacturer or dealer of the property.  Uses the lease to make sales  Recognizes 2 Income: (1) GProfit = Sales – COGS and; (2) Interest Income. TOTAL INCOME = GP + Interest Income* * also called financing income. Direct Sales Type Gross Rentals* (Ann Gross Rentals* (Ann Gross Rental x Lease term) Investment Rental x Lease term) Add: Residual Value** Add: Residual Gross Investment Value** Gross Investment * In case NOT given, Cost of the asset – PV of RV = PV of Rentals PV of Rentals / PV factor (OA or AD) = Rental Receivable Rate: (priority) a. Implicit Rate b. Incremental Rate **added whether guaranteed or unguaranteed. RV is only considered if there is no Transfer of ownership and BPO. (T – nothing is added in GRentals; O – option price is added instead of RV; M & S – RV is added)

Direct Net Investment

Cost of the Asset Add: IDC paid by lessor* Net Investment *capitalized as part of lease receivable

Sales Type PV of Rentals Add: PV of RV or Opt. Price Net Investment

Gross Investment Gross Investment Less: Net Less: Net Investment* Investment* U Interest Income U Interest Income *par 67 – lessors shall recognize asset (lease receivable) EQUAL to Net Investment in the lease. NInvestment will amortized using the effective interest method (amort table) Interest Income = CA, beg x rate Unearned Interest Income (Total financing income)

Sales

COGS

Gross Profit

Direct

Sales Type

0 0

Net Investment or FV*** (whichever is lower)

0

Cost of the Asset** Add: IDC lessor* COGS *expensed outright GP = Sales - COGS

** Gagamitin lang kapag yung RV is GUARANTEED. If UNGUARANTEED: Cost of the Asset Add: IDC lessor Less: PV of URV COGS *** Net Investment or FV (whichever is lower) if RV is GUARANTEED. If UNGUARANTEED: Net Investment or FV (whichever is lower) Less: PV of Unguaranteed Residual value Sales

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Implicit rate BEFORE IDC – applies in annual rental Implicit rate AFTER IDC – amort (interest income)

CA, END = PAYMENT - CA, BEG X 1.ER...