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F4 -M7 - Lessee Accounting Flashcards _ (DETAILED ANSWERS) 2024 - DISTINCTION GUARANTEED.pdf
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F4 -M7 - Lessee Accounting Flashcards _ (DETAILED ANSWERS) 2024 - DISTINCTION GUARANTEED.pdf
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8/9/24, 6:46 AMF4 -M7 - Lessee Accounting
Jeremiah
Terms in this set (15)
operating lease initial carrying value equal to present value of the payments
- lease expense is recorded in a manner designed to mirror straight-line rental of the
asset during the lease term
operating lease amortization - amortization equals the carrying value of the lease liability at the beginning of the
period MINUS [the carrying value of the lease liability at the beginning of the period
multiplied by the interest (rate implicit in the lease)]
Ownership (OWNES) Ownership transfers to the lessee at the end of the lease term
Written (OWNES) Written purchase option which lessee is reasonably certain to exercise
Net Present Value (OWNES) Net present value equals or exceeds substantially all of the fair value of asset (>=90%)
Economic Life (OWNES) Economic life (major part) of the underlying asset within lease term (>=75%)
Specialized (OWNES) Specialized asset such that it will not have an expected, alternative use to lessor
- The option to purchase the leased property at the end of the lease term must
specifically be an option that the lessee is reasonably certain to exercise
reasonably certain
- The fact that the price associated with the option is aligned with fair value does not
provide "reasonable assurance" of exercise.
- the date the underlying asset is made available to the lessee for use
commencement date
- this is when the lessee should begin the recognition of lease expenses
the present value of the following items:
- fixed payments
lease payments at commencement of the - variable payments
lease are calculated based on: - exercise price of purchase option
- termination penalties
- probable amount owed of the guaranteed residual
Amortization Criteria: Ownership or Written amortize over the underlying asset's useful life
Option criteria met (OWNES)
Amortization Criteria: Net Present Value, amortize over shorter of the lease term or the useful life of the asset
Economic Life, or Specialized Asset criteria
met (OWNES)
F4 -M7 - Lessee Accounting
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