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[object Object],[object Object],[object Object],Don’t worry dear, it’s a lease.  No liability but all the benefits.  You’ve just got to know how to work the system.
A  lease   is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.  ( 17.4 ) Operating Lease Finance/Capital Lease OR
 
[object Object],[object Object],[object Object]
IFRS & US GAAP criteria IFRS US GAAP Ownership transferred to lessee by end of period Included (same) Bargain purchase option Included (same) Lease term covers  major part  of assets economic life Included (different) Present value of min. lease payments vs. fair value Included (different) Asset is only usable by Lessee
IFRS US GAAP Lease transfer ownership to the lessee by the end of the lease term Lease transfer ownership to the lessee by the end of the lease term Lessee has an option of buying the  asset at price less then fair market Lessee has an option of buying the  asset at price less then fair market
IFRS US GAAP The lease term is for the  major part  of the lease asset’s economic life Major part is  specifically determined to be  75% The present value of minimum lease payments at the inception of the lease is equal to  substantially all  the fair value of the leased asset Substantially all is  specifically defined as  90% Land and building should be divided into separate components, with separate classification and accounting Land and building generally accounted as a single unit, unless if land represents 25% or more of total fair value of leased property
IAS 17.4 , Definitions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
Key facts  A government department’s agency (lessee) leases a car from a car rental company (lessor) for 5 years. It is assumed that the residual value is going to be £2,000 at the end of the lease term. The interest rate applied is 3.5% and other details are as follows:  Cost of the car 20,000.00£ Annual Payment 3,200.00£ Expected Residual value on disposal 2,000.00£ Economic life7 yearsCommencement Date 1 April 2008lessee's financial year end31 March  Cost of the Car Annual Payment 3200£ Expected Residual Value 2,000£ Economic Life 7 yrs Commencement Date 1 April 2008
Under IFRS - Finance Lease Apr-08 Apr- 09 Apr-10 Apr-11 Apr-12 0 1 2 3 4 Totals Annual Payment 3200 3200 3200 3200 3200 DCF 3.5% 1.00 .97 .93 .90 .87 NPV 3200 3092 2987 2886 2789 14954
B/S ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
INCOME STATEMENT ,[object Object],[object Object],[object Object],[object Object]
RATIOS ,[object Object],[object Object],[object Object],[object Object]
Differences affect on users
Sale Lease-back
IAS 17 -  Leases ,[object Object],[object Object]

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Ias 17

  • 1.  
  • 2.  
  • 3.  
  • 4.  
  • 5.
  • 6. A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. ( 17.4 ) Operating Lease Finance/Capital Lease OR
  • 7.  
  • 8.
  • 9. IFRS & US GAAP criteria IFRS US GAAP Ownership transferred to lessee by end of period Included (same) Bargain purchase option Included (same) Lease term covers major part of assets economic life Included (different) Present value of min. lease payments vs. fair value Included (different) Asset is only usable by Lessee
  • 10. IFRS US GAAP Lease transfer ownership to the lessee by the end of the lease term Lease transfer ownership to the lessee by the end of the lease term Lessee has an option of buying the asset at price less then fair market Lessee has an option of buying the asset at price less then fair market
  • 11. IFRS US GAAP The lease term is for the major part of the lease asset’s economic life Major part is specifically determined to be 75% The present value of minimum lease payments at the inception of the lease is equal to substantially all the fair value of the leased asset Substantially all is specifically defined as 90% Land and building should be divided into separate components, with separate classification and accounting Land and building generally accounted as a single unit, unless if land represents 25% or more of total fair value of leased property
  • 12.
  • 13.
  • 14.
  • 15. Key facts A government department’s agency (lessee) leases a car from a car rental company (lessor) for 5 years. It is assumed that the residual value is going to be £2,000 at the end of the lease term. The interest rate applied is 3.5% and other details are as follows: Cost of the car 20,000.00£ Annual Payment 3,200.00£ Expected Residual value on disposal 2,000.00£ Economic life7 yearsCommencement Date 1 April 2008lessee's financial year end31 March Cost of the Car Annual Payment 3200£ Expected Residual Value 2,000£ Economic Life 7 yrs Commencement Date 1 April 2008
  • 16. Under IFRS - Finance Lease Apr-08 Apr- 09 Apr-10 Apr-11 Apr-12 0 1 2 3 4 Totals Annual Payment 3200 3200 3200 3200 3200 DCF 3.5% 1.00 .97 .93 .90 .87 NPV 3200 3092 2987 2886 2789 14954
  • 17.
  • 18.
  • 19.
  • 22.

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