Sable is considering whether to classify a 10-year bulldozer lease as a sales-type lease or operating lease under ASC 840. The key terms of the lease are provided. To determine the appropriate classification, Sable evaluates the lease against the capitalization criteria in ASC 840-10-25. Sable determines the lease meets the criteria for a sales-type lease as the present value of minimum lease payments is over 90% of the bulldozer's fair value of $125,000. The document then provides the journal entries Sable would record at lease inception and to account for the first lease payment. It also includes schedules showing the amortization of unearned income over the lease term and
This document outlines the requirements and guidance for a first-time adopter of International Financial Reporting Standards (IFRS) as provided in IFRS 1. It discusses the objective, scope, definitions, recognition and measurement principles, mandatory exceptions and optional exemptions to retrospective application that a first-time adopter must consider. It also provides examples of the phased transition approach to IFRS adoption in Ethiopia, including transition dates and timelines for different entities.
IFRS 3 establishes principles for accounting for business combinations. It requires acquirers to recognize identifiable assets acquired, liabilities assumed and any non-controlling interest at fair value. Goodwill is recognized as the excess of consideration transferred over the fair value of identifiable net assets. The acquisition method involves 4 steps - identifying the acquirer, determining the acquisition date, recognizing and measuring assets, liabilities and non-controlling interest, and recognizing and measuring goodwill or gain on bargain purchase. IFRS 3 also provides guidance on specific transactions like business combinations achieved in stages and accounting for acquisition costs.
IFRS 10 establishes principles for the presentation of consolidated financial statements when an entity controls one or more other entities. It sets out the objective to consolidate all entities that an entity controls into a single set of financial statements. The principles of consolidation require combining similar line items from the parent and its subsidiaries, offsetting the parent's investment in subsidiaries with their equity, eliminating intragroup transactions and balances, applying uniform accounting policies, and treating non-controlling interests as separate components of equity. Extensive disclosures are also required by IFRS 12 regarding interests in other entities.
Summary and Overview of new IFRS 9 on Financial instruments - covering valuation models, the impairment approach for trade receivables, and hedge accounting examples
This document provides an overview of IAS 8, which establishes principles for selecting accounting policies, accounting for changes in estimates and correcting errors. It defines key terms and outlines requirements for changes in policies, estimates and error corrections. The standard aims to ensure financial statements provide reliable and relevant information. Accounting policy changes must be applied retrospectively, while estimate changes are applied prospectively. Errors are corrected retrospectively. Disclosures are required for policy changes, estimate changes and prior period errors.
IFRS 15 - the new revenue recognition standard EY Belgium
The IASB and the FASB have jointly issued a new revenue standard, IFRS 15 Revenue from Contracts with Customers, which will replace the existing IFRS and US GAAP revenue guidance.Find out more in our comprhensive brochure.
This document outlines the requirements and guidance for a first-time adopter of International Financial Reporting Standards (IFRS) as provided in IFRS 1. It discusses the objective, scope, definitions, recognition and measurement principles, mandatory exceptions and optional exemptions to retrospective application that a first-time adopter must consider. It also provides examples of the phased transition approach to IFRS adoption in Ethiopia, including transition dates and timelines for different entities.
IFRS 3 establishes principles for accounting for business combinations. It requires acquirers to recognize identifiable assets acquired, liabilities assumed and any non-controlling interest at fair value. Goodwill is recognized as the excess of consideration transferred over the fair value of identifiable net assets. The acquisition method involves 4 steps - identifying the acquirer, determining the acquisition date, recognizing and measuring assets, liabilities and non-controlling interest, and recognizing and measuring goodwill or gain on bargain purchase. IFRS 3 also provides guidance on specific transactions like business combinations achieved in stages and accounting for acquisition costs.
IFRS 10 establishes principles for the presentation of consolidated financial statements when an entity controls one or more other entities. It sets out the objective to consolidate all entities that an entity controls into a single set of financial statements. The principles of consolidation require combining similar line items from the parent and its subsidiaries, offsetting the parent's investment in subsidiaries with their equity, eliminating intragroup transactions and balances, applying uniform accounting policies, and treating non-controlling interests as separate components of equity. Extensive disclosures are also required by IFRS 12 regarding interests in other entities.
Summary and Overview of new IFRS 9 on Financial instruments - covering valuation models, the impairment approach for trade receivables, and hedge accounting examples
This document provides an overview of IAS 8, which establishes principles for selecting accounting policies, accounting for changes in estimates and correcting errors. It defines key terms and outlines requirements for changes in policies, estimates and error corrections. The standard aims to ensure financial statements provide reliable and relevant information. Accounting policy changes must be applied retrospectively, while estimate changes are applied prospectively. Errors are corrected retrospectively. Disclosures are required for policy changes, estimate changes and prior period errors.
IFRS 15 - the new revenue recognition standard EY Belgium
The IASB and the FASB have jointly issued a new revenue standard, IFRS 15 Revenue from Contracts with Customers, which will replace the existing IFRS and US GAAP revenue guidance.Find out more in our comprhensive brochure.
The document provides an overview of IFRS 17, the new accounting standard for insurance contracts. It discusses the key impacts of IFRS 17, including new financial reporting requirements. It also examines some of the challenges insurers may face in implementing IFRS 17 and potential solutions, such as the use of data, analytics and digital technologies from IBM.
This document discusses accounting policies, changes in accounting estimates and errors as per IAS 8. It provides an overview of the objectives and key concepts related to selection and application of accounting policies, changes in accounting policies, changes in accounting estimates and correction of errors. It explains the accounting treatment for changes in accounting policies, changes in accounting estimates and prior period errors as per IAS 8 and compares it with similar requirements in Indian GAAP.
The document provides an overview of IAS 36 Impairment of Assets. Key points include:
1) IAS 36 provides guidance for determining when the carrying amount of an asset exceeds its recoverable amount and an impairment loss must be recognized. It excludes certain assets and requires annual impairment testing of goodwill and indefinite-lived intangible assets.
2) An impairment loss is recognized when the recoverable amount of an asset or cash-generating unit is less than its carrying amount. The recoverable amount is the higher of an asset's fair value less costs to sell or its value in use.
3) Impairment losses are allocated first to reduce the carrying amount of goodwill allocated to
The document discusses LIBOR (London Interbank Offered Rate), which is the average interest rate that leading banks in London charge when lending to other banks. It provides background information on LIBOR, including that it was established in 1986, has 15 maturity periods ranging from overnight to 12 months, and rates for 10 major currencies. The document then discusses how LIBOR manipulation by banks like Barclays impacted global financial markets and consumers through its effect on loans, mortgages, savings, and derivatives.
International Accounting Standard Board(IASB) - StructureSundar B N
The document discusses the structure of the International Accounting Standards Board (IASB). The IASB was formed in 2001 to set accounting standards and replaced the International Accounting Standards Committee. The IASB has a three-level governance structure, with the IFRS Foundation overseeing the IASB and accountable to the Monitoring Board. The IASB itself is made up of 16 full and part-time members who are responsible for developing accounting standards. It is supported by interpretation committees and advisory councils.
IAS 16 provides guidance on accounting for property, plant and equipment. It requires initial recognition of assets at cost and subsequent measurement using either the cost model or revaluation model. It also provides guidance on depreciation, derecognition, and disclosures of property, plant and equipment. Some key differences from Indian GAAP include requirements for regular revaluation, a component approach for depreciation, and capitalization of certain subsequent expenditures.
Accounting Standard 1 discusses the disclosure of accounting policies. Accounting policies refer to the specific principles and methods used to prepare financial statements, such as the methods of depreciation, treatment of construction expenditures, currency conversion, and inventory valuation. Disclosing all significant accounting policies together is helpful for readers to understand and compare financial statements. Fundamental assumptions like going concern, consistency, and accrual must be followed. Selection of policies should exhibit a true and fair view while considering prudence, substance over form, and materiality. Changes in policies are allowed if required by statute, compliance with standards, or to provide a more appropriate presentation.
International financial reporting standardsKushal Setty
International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board to be the global standard for public company financial statements. More than 100 countries either require or allow the use of IFRS. Several countries including Canada, India, and the EU are transitioning to require IFRS by 2011. While IFRS adoption has benefits, there are also costs and challenges to the transition for companies and differences remain between IFRS and US GAAP standards.
Chapter 2: Consolidation of Financial Information Abdulkadir Molla
1. The chapter discusses the consolidation process for business combinations, where one company obtains control over another and their financial statements are combined.
2. There are two main methods for consolidation - acquisition method for when dissolution occurs, and acquisition method for when separate incorporation is maintained.
3. For both methods, consideration transferred is allocated to identifiable assets acquired and liabilities assumed at fair value, with any excess added to goodwill. Acquisition costs are expensed rather than included in the purchase price.
The document discusses key aspects of Generally Accepted Accounting Principles (GAAP) including definitions, similarities and differences between Indian GAAP, International Financial Reporting Standards (IFRS) and US GAAP. It covers topics such as financial statements, revenue recognition, foreign currency translation and more. GAAP provides common standards for preparing financial statements to ensure consistency and comparability. While there are some differences between jurisdictions, the overall goals and many principles are largely similar across frameworks.
Deferred Tax,
By: Mahima Pahwa (IBS Gurgaon)
Differences between Accounting Income and Taxable Income
TYPES OF DEFERRED TAX
DEFERRED TAX LIABILITY
FINANCIAL STATEMENTS PRESENTATION
This document discusses creative accounting and earnings management. It defines creative accounting as manipulating financial statements through inappropriate accounting policies or transactions to make a company appear more favorable. Earnings management is defined as deliberately manipulating earnings to meet targets. The document explores reasons for and methods of both, and whether they are ethical. It also discusses how regulators curb creative accounting and how to detect earnings management.
The document defines key terms related to leases, including lessor, lessee, operating lease, and finance lease. It distinguishes between operating and finance leases and provides criteria for each. It also discusses minimum lease payments, contingent rent, fair value, economic life, and sale-leaseback transactions. Recording of leases is discussed for both lessees and lessors depending on if the lease is an operating or finance lease.
Corporate Valuations “Techniques & Application”: A compilation of research oriented valuation articles.
Contents: Business valuation, Relative valuation, Sum of the parts valuation and value creation, ESOP valuation, Discounted Cash Flow Valuation, Enterprise Valuation etc.
IAS 8 Accounting Policies, Changes In Accounting Estimates And Errorsuktaxandaccounts.com
This document summarizes the key principles from IAS 8 regarding accounting policies, changes in estimates and errors. It outlines that IAS 8 prescribes criteria for selecting and changing accounting policies, and the accounting treatment for changes in policies, estimates and errors. It defines various terms and concepts. It also discusses the requirements for applying changes retrospectively or prospectively, and disclosure requirements for changes.
This document provides an overview of IND AS 103 on business combinations. It discusses the key principles, including:
1) All business combinations must be accounted for using the acquisition (purchase) method, which requires identifying an acquirer and measuring acquisition date fair values of the acquiree's assets and liabilities.
2) Goodwill arises when the consideration transferred exceeds the net fair values recognized and is not amortized but tested annually for impairment.
3) The acquirer recognizes the acquiree's identifiable assets, liabilities and contingent liabilities at their acquisition-date fair values. Any excess of cost over fair value is recognized as goodwill.
This document provides an overview of the International Accounting Standards Board (IASB) framework for financial reporting and standards.
It begins with an introduction to the IASB and the need for a common set of global accounting standards to improve comparability. It then discusses key aspects of the IASB conceptual framework, including its purpose and status, users and objectives of financial reporting, qualitative characteristics of useful financial information, and the elements of financial statements.
The document also provides a high-level summary of experiences with IFRS adoption in Canada and the US. It concludes with a brief look ahead at ongoing projects by the IASB and FASB to further improve and converge accounting standards internationally.
The document summarizes the key changes introduced by the Standards on Auditing (SA) 700 (Revised), SA 705, and SA 706 issued by the Auditing and Assurance Standards Board of the Institute of Chartered Accountants of India regarding the format and content of audit reports. Specifically, it provides a comparative analysis of the old versus new audit report formats, explains the types of modified audit opinions under SA 705, and the use of emphasis of matter and other matter paragraphs in audit reports as per SA 706. The document aims to explain the implications of the revised standards for auditors in India.
1) The document discusses key concepts for capital investment decisions including determining relevant cash flows, computing depreciation, and methods for calculating operating cash flow.
2) It emphasizes that only incremental cash flows from accepting a project should be included in the analysis. Common types of cash flows are discussed.
3) Pro forma financial statements and tables are presented to illustrate how to project cash flows, capital requirements, and total cash flows for making the investment decision.
English prestige - commercial leasing tenant & landlord representationEnglish Prestige
English Prestige integrated online to offline (O2O) transactional model and positioning as one stop shop for entire home services model brings exhaustive supply, demand and distribution together to tap the highly fragmented brokerage market.
The document provides an overview of IFRS 17, the new accounting standard for insurance contracts. It discusses the key impacts of IFRS 17, including new financial reporting requirements. It also examines some of the challenges insurers may face in implementing IFRS 17 and potential solutions, such as the use of data, analytics and digital technologies from IBM.
This document discusses accounting policies, changes in accounting estimates and errors as per IAS 8. It provides an overview of the objectives and key concepts related to selection and application of accounting policies, changes in accounting policies, changes in accounting estimates and correction of errors. It explains the accounting treatment for changes in accounting policies, changes in accounting estimates and prior period errors as per IAS 8 and compares it with similar requirements in Indian GAAP.
The document provides an overview of IAS 36 Impairment of Assets. Key points include:
1) IAS 36 provides guidance for determining when the carrying amount of an asset exceeds its recoverable amount and an impairment loss must be recognized. It excludes certain assets and requires annual impairment testing of goodwill and indefinite-lived intangible assets.
2) An impairment loss is recognized when the recoverable amount of an asset or cash-generating unit is less than its carrying amount. The recoverable amount is the higher of an asset's fair value less costs to sell or its value in use.
3) Impairment losses are allocated first to reduce the carrying amount of goodwill allocated to
The document discusses LIBOR (London Interbank Offered Rate), which is the average interest rate that leading banks in London charge when lending to other banks. It provides background information on LIBOR, including that it was established in 1986, has 15 maturity periods ranging from overnight to 12 months, and rates for 10 major currencies. The document then discusses how LIBOR manipulation by banks like Barclays impacted global financial markets and consumers through its effect on loans, mortgages, savings, and derivatives.
International Accounting Standard Board(IASB) - StructureSundar B N
The document discusses the structure of the International Accounting Standards Board (IASB). The IASB was formed in 2001 to set accounting standards and replaced the International Accounting Standards Committee. The IASB has a three-level governance structure, with the IFRS Foundation overseeing the IASB and accountable to the Monitoring Board. The IASB itself is made up of 16 full and part-time members who are responsible for developing accounting standards. It is supported by interpretation committees and advisory councils.
IAS 16 provides guidance on accounting for property, plant and equipment. It requires initial recognition of assets at cost and subsequent measurement using either the cost model or revaluation model. It also provides guidance on depreciation, derecognition, and disclosures of property, plant and equipment. Some key differences from Indian GAAP include requirements for regular revaluation, a component approach for depreciation, and capitalization of certain subsequent expenditures.
Accounting Standard 1 discusses the disclosure of accounting policies. Accounting policies refer to the specific principles and methods used to prepare financial statements, such as the methods of depreciation, treatment of construction expenditures, currency conversion, and inventory valuation. Disclosing all significant accounting policies together is helpful for readers to understand and compare financial statements. Fundamental assumptions like going concern, consistency, and accrual must be followed. Selection of policies should exhibit a true and fair view while considering prudence, substance over form, and materiality. Changes in policies are allowed if required by statute, compliance with standards, or to provide a more appropriate presentation.
International financial reporting standardsKushal Setty
International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board to be the global standard for public company financial statements. More than 100 countries either require or allow the use of IFRS. Several countries including Canada, India, and the EU are transitioning to require IFRS by 2011. While IFRS adoption has benefits, there are also costs and challenges to the transition for companies and differences remain between IFRS and US GAAP standards.
Chapter 2: Consolidation of Financial Information Abdulkadir Molla
1. The chapter discusses the consolidation process for business combinations, where one company obtains control over another and their financial statements are combined.
2. There are two main methods for consolidation - acquisition method for when dissolution occurs, and acquisition method for when separate incorporation is maintained.
3. For both methods, consideration transferred is allocated to identifiable assets acquired and liabilities assumed at fair value, with any excess added to goodwill. Acquisition costs are expensed rather than included in the purchase price.
The document discusses key aspects of Generally Accepted Accounting Principles (GAAP) including definitions, similarities and differences between Indian GAAP, International Financial Reporting Standards (IFRS) and US GAAP. It covers topics such as financial statements, revenue recognition, foreign currency translation and more. GAAP provides common standards for preparing financial statements to ensure consistency and comparability. While there are some differences between jurisdictions, the overall goals and many principles are largely similar across frameworks.
Deferred Tax,
By: Mahima Pahwa (IBS Gurgaon)
Differences between Accounting Income and Taxable Income
TYPES OF DEFERRED TAX
DEFERRED TAX LIABILITY
FINANCIAL STATEMENTS PRESENTATION
This document discusses creative accounting and earnings management. It defines creative accounting as manipulating financial statements through inappropriate accounting policies or transactions to make a company appear more favorable. Earnings management is defined as deliberately manipulating earnings to meet targets. The document explores reasons for and methods of both, and whether they are ethical. It also discusses how regulators curb creative accounting and how to detect earnings management.
The document defines key terms related to leases, including lessor, lessee, operating lease, and finance lease. It distinguishes between operating and finance leases and provides criteria for each. It also discusses minimum lease payments, contingent rent, fair value, economic life, and sale-leaseback transactions. Recording of leases is discussed for both lessees and lessors depending on if the lease is an operating or finance lease.
Corporate Valuations “Techniques & Application”: A compilation of research oriented valuation articles.
Contents: Business valuation, Relative valuation, Sum of the parts valuation and value creation, ESOP valuation, Discounted Cash Flow Valuation, Enterprise Valuation etc.
IAS 8 Accounting Policies, Changes In Accounting Estimates And Errorsuktaxandaccounts.com
This document summarizes the key principles from IAS 8 regarding accounting policies, changes in estimates and errors. It outlines that IAS 8 prescribes criteria for selecting and changing accounting policies, and the accounting treatment for changes in policies, estimates and errors. It defines various terms and concepts. It also discusses the requirements for applying changes retrospectively or prospectively, and disclosure requirements for changes.
This document provides an overview of IND AS 103 on business combinations. It discusses the key principles, including:
1) All business combinations must be accounted for using the acquisition (purchase) method, which requires identifying an acquirer and measuring acquisition date fair values of the acquiree's assets and liabilities.
2) Goodwill arises when the consideration transferred exceeds the net fair values recognized and is not amortized but tested annually for impairment.
3) The acquirer recognizes the acquiree's identifiable assets, liabilities and contingent liabilities at their acquisition-date fair values. Any excess of cost over fair value is recognized as goodwill.
This document provides an overview of the International Accounting Standards Board (IASB) framework for financial reporting and standards.
It begins with an introduction to the IASB and the need for a common set of global accounting standards to improve comparability. It then discusses key aspects of the IASB conceptual framework, including its purpose and status, users and objectives of financial reporting, qualitative characteristics of useful financial information, and the elements of financial statements.
The document also provides a high-level summary of experiences with IFRS adoption in Canada and the US. It concludes with a brief look ahead at ongoing projects by the IASB and FASB to further improve and converge accounting standards internationally.
The document summarizes the key changes introduced by the Standards on Auditing (SA) 700 (Revised), SA 705, and SA 706 issued by the Auditing and Assurance Standards Board of the Institute of Chartered Accountants of India regarding the format and content of audit reports. Specifically, it provides a comparative analysis of the old versus new audit report formats, explains the types of modified audit opinions under SA 705, and the use of emphasis of matter and other matter paragraphs in audit reports as per SA 706. The document aims to explain the implications of the revised standards for auditors in India.
1) The document discusses key concepts for capital investment decisions including determining relevant cash flows, computing depreciation, and methods for calculating operating cash flow.
2) It emphasizes that only incremental cash flows from accepting a project should be included in the analysis. Common types of cash flows are discussed.
3) Pro forma financial statements and tables are presented to illustrate how to project cash flows, capital requirements, and total cash flows for making the investment decision.
English prestige - commercial leasing tenant & landlord representationEnglish Prestige
English Prestige integrated online to offline (O2O) transactional model and positioning as one stop shop for entire home services model brings exhaustive supply, demand and distribution together to tap the highly fragmented brokerage market.
AshfordACC305Guidance ReportWeek TwoMake the follo.docxfredharris32
Ashford
ACC305
Guidance Report
Week Two
Make the following changes to the exercises and problems.
Nov 13
Problem
Change Amount to:
Applicable Transaction
Ex 4-16
240000
Customers
10000
Interest on notes receivable
32000
Principle on note receivable
15000
Sale of investments
60000
Proceeds from note payable
-90000
Purchase of inventory
-20000
Interest on note payable
-40000
Purchase of equipment
30000
Salaries to employees
-42000
Principle on note payable
-52000
Payment of dividends to shareholders
Ex 4-19
Financing
Investing
Operating
270000
-25000
-12000
-9000
-55000
36000
Ex 4-22
950
Net income
210
Depreciation expense
Changed ending balance
685
Accounts receivable
670
Inventory
65
Prepaid insurance
2200
Plant and equipment
-810
Accumulated depreciation
270
Accounts payable
280
Payables for admin
230
Income taxes payable
820
Note payable
945
Common stock
485
Retained earnings
Ex 5-3
2011
2012
Installment Sales
390000
490000
Cost of Installment Sales
270000
290000
Cash collections on sales
during:
2011
240000
90000
2012
300000
Ex 5-10
($ in millions)
2011
2012
2013
Contract price
$340
$340
$340
Actual costs to date
70
150
200
Estimated costs to complete
150
90
0
Total estimated costs
220
240
200
Estimated gross profit (actual in 2013)
$120
$100
$140
Case 5-23
Net income
16000
Short term note
5000
Bonds interest rate
0.08
Cash balance
15000
Profit margin on sales
0.05
Return on assets
0.075
Gross profit margin
0.4
Inventory turnover ratio
6
Receivables turnover ratio
25
Acid test ratio
0.9
Current ratio
2
Return on shareholders equity
0.1
Debt to equity ratio
0.33
Times interest earned
12
Exercise 4-16
Bluebonnet Bakers
Statement of Cash Flows
For the Year Ended December 31, 2011
Cash flows from operating activities:
Collections from customers
Interest on note receivable
Purchase of inventory
Interest on note payable
Payment of salaries
Net cash flows from operating activities
$
Cash flows from investing activities:
Collection of note receivable
Sale of investments
Purchase of equipment
Net cash flows from investing activities
Cash flows from financing activities:
Proceeds from note payable
Payment of note payable
Payment of dividends
Net cash flows from financing activities
Net increase in cash
Cash and cash equivalents, January 1
Cash and cash equivalents, December 31
$
Exercise 4-19
Requirement 1 (Completed)
Financing
Investing
Operating
1.
Changed
2.
(
Changed
3.
(
4.
(
5.
Changed
6.
Changed
7.
Changed
8.
Changed
9.
(
__________
__________
__________
$
=
Requirement 2
Wainwright Corporation
Statement of Cash Flows
For the Month Ended March 31, 2011
Cash flows from operat ...
This document discusses lease financing and lease analysis. It covers the key parties in a lease transaction, the primary lease types, how leases are treated for tax purposes, and how leasing affects a firm's balance sheet. It also provides an example comparing the after-tax costs of owning vs leasing equipment for a firm, analyzing it from both the lessee and lessor perspectives. Key factors in lease analysis like residual value uncertainty and cancellation clauses are also discussed.
Fin 331 Homework Assignment 3 Due December 3, 2015 .docxmydrynan
Fin 331
Homework Assignment 3
Due December 3, 2015
You are to perform and investment analysis on the purchase of Del Norte Terraces
Medical Dental Center in Poway. Review the Broker Presentation that is attached.
Please only use the broker package and DO NOT DISTURB THE BROKERS.
You may complete this assignment as a team with members of our class. No
more than 4 members per team. In order to get credit for this assignment,
your name MUST appear on the answer sheet that is submitted for grading.
This broker has prepared a presentation package. You are to use the broker
assumptions and prepare a 5 year pro forma with revised assumptions. You are
also required to calculate the investment ratios and performance measures using
the revised assumptions that are provided.
Assumptions:
Offer/Purchase Price: $9,950,000
In addition to the down payment, you will pay closing costs at the time of
purchase of $20,000. Be sure to include these costs at the time of
acquisition.
Rents will grow at 3% per year.
Exit Cap Rate of 5.50% using the NOI for year 6.
Costs of sale at the end of year 5 are equal to 5% brokerage commissions,
based on your exit sale price, plus $15,000 for “Other Costs of Sale”.
Fixed operating expenses will increase 2% per year.
Other operating expenses will increase 3% per year.
Reserves/CapX Budget is constant.
Financing:
o Loan amount is determined as the lesser of 65% of the purchase
price or maximum Debt Coverage Ratio of 1.25.
o Assume 4.25% interest, 30 year amortization and loan origination fee
of 1.00%. Loan origination fees are paid at the time of purchase,
o Assume no prepayment penalties on either loan at the time of sale
at end of year 5.
Here is the Broker’s reconstructed annual property operating data [APOD]:
Assume that the total of $214,127 operating
costs consist of:
Fixed Expenses for the first year are property
taxes of $124,375, which are 1.25% of the
purchase price plus $25,000 for insurance.
Total Fixed operating expense are $149,375,
the total of these two items.
Capital reserves are $10,000 per year.
Other operating expenses are $54,752, the remainder of the total projected
operating expenses of $214,127 for year 1 of your pro-forma.
Requirements:
Use the assumptions provided to construct a pro forma for 6 years (since
you need the NOI for year 6 to calculate the Sale Price at the end of year
5).
o Start with Rental Income based on the current rent role. Rents will
increase by 3% per year.
Calculate the loan amount using DCR and LTV. What is the loan amount?
Lender will allow the lesser of the two loan amounts that you have
calculated.
Calculate the net sale proceed at the end of year 5. Include your calculation
of broker commissions and other sale costs of $15,000.
Calculate the effective cost of borrowed funds for the 5 year holding period.
Remember to adjust for the origination fee.
Yo ...
The document provides an outline for a conference presentation on lease accounting. It covers the definition of a lease, the lease versus buy decision, types of leases including operating, capital/finance, and sales-type leases. It discusses lease classification criteria and provides examples of accounting entries and financial statement presentation for operating and direct finance/capital leases. The presentation aims to explain the basics of lease accounting for both lessors and lessees.
FA II - Chapter 4; Part II, Leases.pptx bestKalkaye
This document outlines the key concepts and accounting treatments related to lease accounting. It discusses lease accounting from the perspectives of both the lessee and the lessor. For lessees, it describes how to classify and account for operating and capital leases. For lessors, it distinguishes between operating, direct financing, and sales-type leases. It also discusses special topics that can complicate lease accounting, such as residual values, bargain purchase options, and initial direct costs. The document uses illustrations and journal entries to demonstrate how to apply lease accounting standards.
The document discusses accounting treatment for leases according to various standards. It defines key terms like lease, bailment, operating lease and financial lease.
For financial leases, it provides accounting treatment as per AS 19 and Ind AS 17 for both lessee and lessor. For lessee, a lease liability and asset are recognized at inception equal to the PV of lease payments or fair value. Rentals paid reduce the liability and interest is charged to P&L. Depreciation is charged on the asset. For lessor, a receivable equal to the investment in lease is recognized which is reduced over the lease term. Interest is recognized as income.
For operating leases, rentals are charged to
This document analyzes the financial viability of operating an ocean carrier vessel under different scenarios. It presents net present value (NPV) calculations for selling the vessel after 15, 25, or 30 years under a 35% U.S. corporate tax rate or 0% Hong Kong tax rate. The internal rates of return are also reported. Sensitivity analysis is shown for variations in spot rates and operating costs. The executive summary recommends not accepting the project under either tax regime, reviewing a tax inversion option, potentially holding vessels past 15 years, and updating cash flow projections before each survey.
The document discusses methods for valuing diminution or loss in property value due to tenant dilapidations. It argues traditional "all risk yield" methods are inadequate and promotes using discounted cash flow analysis instead. DCF clearly demonstrates losses and mitigation by modeling repair costs, rent levels with and without short-term letting agreements, and timelines to relet the property. The example analysis shows DCF results in a much higher diminution value than the traditional method. Contact information is provided for more details on DCF valuations.
This document discusses various techniques for estimating cash flows and analyzing risk for capital budgeting projects. It provides examples of estimating costs, revenues, depreciation, taxes, and cash flows for a sample project over multiple years. It also defines and compares sensitivity analysis, scenario analysis, and simulation analysis for examining risk and uncertainty in project cash flows and outcomes.
Lw2 margins profitability and financial return v1901 ssLiza Shchepelina
- The document discusses key financial metrics for measuring marketing performance such as margins, average selling price, fixed and variable costs, contribution per unit, and break-even analysis.
- It also covers return on investment metrics like net profit, return on sales, return on investment, payback period, and net present value which are important for evaluating marketing investments and projects.
- Finally, it discusses return on marketing investment which measures the contribution from marketing expenditures and profitability analysis techniques for assessing marketing performance.
Capital budgeting is the process of evaluating long-term investments to maximize shareholder wealth. It involves assessing projects that require fixed assets operating for over one year. The key evaluation techniques are payback period, net present value (NPV), and internal rate of return (IRR), with NPV preferred as it considers total cash flows over time. NPV accepts projects when the present value of inflows exceeds outflows, while IRR accepts projects when the rate of return exceeds the cost of capital.
The document discusses key concepts for estimating and analyzing project cash flows including: the elements of a cash flow stream; principles for cash flow estimation such as separation, incremental, post-tax, and consistency; perspectives to view cash flows from; and biases that can impact cash flow forecasting. Accurately estimating cash flows is important but difficult, and requires coordinating across departments while following principles and addressing inherent biases to produce reliable forecasts.
This chapter discusses key financial performance metrics including the balance sheet, income statement, and cash flow statement. It describes how to prepare these statements and defines important terms. The chapter also covers operating breakeven analysis, explaining how to calculate survival revenues needed to cover costs using the variable cost ratio. An example is provided to demonstrate how to determine the breakeven level of revenues. Finally, the chapter identifies factors that influence breakeven levels, such as contribution margin and fixed costs.
This document provides an overview of key financial terms and concepts for non-financial managers. It defines terms like assets, liabilities, equity, current/long-term assets and liabilities. It also explains key financial statements including the balance sheet, income statement, and cash flow statement. Examples are provided to illustrate accounting entries and calculations of financial metrics like EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation and Amortization. The document aims to help non-financial managers better understand basic financial concepts.
This document provides an overview of a company for investors. It summarizes that the company was founded in 1953, operates in mining and heavy construction, and has taken steps to reduce debt and refocus on its core business areas. It also outlines the company's equipment fleet, customer relationships, growth opportunities in the oil sands region, and strategic focus on operational excellence and revenue growth.
Financial accounting mgt101 power point slides lecture 09Abdul Wadood Ansary
The document discusses key accounting concepts including the profit and loss account, balance sheet, assets and liabilities. It provides examples of vertical and horizontal presentations of the profit and loss account. It also discusses the classification of assets and liabilities as current, long-term, or fixed on the balance sheet. Rules for debit and credit entries are explained for increases and decreases in assets and liabilities.
The document discusses several examples of cost-benefit analyses for capital investment projects. The examples calculate net present value (NPV) to determine if the projects will save more money than their costs over time when considering factors like equipment costs, annual cost savings, depreciation, taxes, resale value and discount rates. In one example, automating part of a business' operations with $80,000 equipment that saves $22,000 annually is determined to have a positive NPV of $3,860 based on a 5-year analysis. A second example of a $730,000 machine that saves $270,000 annually also has a positive NPV.
This document discusses cash flow estimation and risk analysis for a proposed project. It provides details on the project's costs, depreciation basis, sales and cost projections including inflation, calculation of operating cash flows, impacts of working capital, and potential salvage value. Sensitivity to changes in sales, costs, or investments in other production lines is important to consider in the analysis. Properly accounting for inflation is also key to avoid underestimating project value.
Similar to 2014 Deloitte Audit Case Competition (20)
1. Case 6: Deal for a Dozer
2014 Audit Case Competition
University of Iowa
Chen Chen
Yanzhi Gong
Yue Li
Jia Liu
Nicholas Logan
2. 2
Presentation Agenda
Page
Case Introduction and Answer Key 3
Capitalization Group I Criteria 6
Capitalization Group II Criteria 10
Accounting for Sales-Type Leases 11
Impacts on Financial Statements 16
Implications of New Lease Standards 20
Case Summary 24
3. 3
Case Introduction
• Lessor - Sable Inc.
• Lessee - Buildit Inc.
Bulldozer Lease Terms
Lease term 10 years
Estimated economic life 15 years
Fair value (List Price) $125,000 ($135,000)
Lessor’s implicit rate 6.93% (5.45%)
Annual lease payments $16,000
Unguaranteed residual value $24,000
The first lease payment is made at the end of the year 1.
Each subsequent payment is made on December 31.
ASC 840-10-55
4. 4
Case Requirements
• 1. How should Sable classify the lease in its accounting records?
Sales-Type Lease
• 2. Provide the journal entries that Sable should record to:
a. Initially record the lease.
Gross Investment in Lease $184,000
Cost of Sales 87,724
Unearned Income $59,000
Sales Revenue 112,724
Asset (at carrying value) 100,000
5. 5
Case Requirements
b. Account for the first lease payment made to Sable at the end of
year 1.
To record receipt of lease payment at the end of year
To record amortization of unearned income for the year
Cash $16,000
Gross Investment in Lease $16,000
Unearned Income $8,667
Interest Income $8,667
6. 6
Capitalization Group I Criteria
Lease
Agreement
Capital
Lease
Operating
Lease
Ownership
Transfer?
Lease
Term ≥75%
Asset Life
PV of Min
Lease PMTs
≥90% FMV
No NoNoNo
YesYesYesYes
ASC 840-10-25-1
Bargain
Purchase
Option?
7. 7
Why $125,000 instead of $135,000?
ASC 840-10-55 Implementation Guidance-Lessor
>> Defining Fair Value of the Leased Property
55-43 If the lessor is a manufacturer or dealer, the fair value
of the property at lease inception ordinarily will be its normal
selling price, reflecting any volume or trade discounts that may
apply. However, the determination of fair value should be
made in light of market conditions prevailing at the time, which
may indicate that the fair value of the property is less than the
normal selling price and, in some instances, less than the cost
of the property.
8. 8
Minimum Lease Payment Test
Minimum Lease Payment:
Fair Value = $125,000
N = 10
I/Y = 6.93%
PMT = $16,000
PV = ? $112,724
≥ 90% of Fair Value Test
$112,724
$125,000
Pass Test
90.2% > 90%
9. 9
What if $135,000?
Minimum Lease Payment:
Fair Value = $135,000
N = 10
I/Y = 5.94%
PMT = $16,000
PV = ? $120,885
≥ 90% of Fair Value Test
$120,885
$135,000
Fail Test
89.5% < 90%
11. 11
Accounting for Sales-Type Leases
Meets Any
of Group I
Criteria Yes
No Sales-
Type
Lease
Does Asset Fair
Value Equal Lessor’s
Book Value?
Meets Both
of Group II
Criteria
Direct-
Financing
Lease
ASC 840-10-25-43
12. 12
Journal Entries: Beginning of Lease Term
Key Component of the
Computation
Gross
Investment
Net Investment
Unearned
Income
Minimum Lease Payments
Lease Payments (10 x $16,000) $160,000 $112,724 $47,276
Unguaranteed Residual 24,000 12,276 11,724
Total $184,000 $125,000 $59,000
Gross Investment in Lease $184,000
Cost of Sales 87,724
Unearned Income $59,000
Sales Revenue 112,724
Asset (at carrying value) 100,000
ASC 840-30-30
13. 13
Journal Entries: During Year 1
Debit Credit
Cash $16,000
Gross Investment in Lease $16,000
To record receipt of lease payment at the end of year
To record amortization of unearned income for the year
Debit Credit
Unearned Income $8,667
Interest Income $8,667
14. 14
Amortization Schedule (Interest Rate: 6.93%)
Year
Payment
Ending of
Period
Interest
Income for
Period
Ending
Gross
Investment
Ending
Unamortized
Unearned
Income
Net
Investment at
End of Period
Beginning
Balance:
$184,000 $59,000 $125,000
1 $16,000 $8,667 168,000 50,333 117,667
2 16,000 8,158 152,000 42,175 109,825
3 16,000 7,615 136,000 34,560 101,440
4 16,000 7,033 120,000 27,527 92,473
5 16,000 6,412 104,000 21,115 82,885
6 16,000 5,747 88,000 15,368 72,632
7 16,000 5,036 72,000 10,332 61,668
8 16,000 4,276 56,000 6,056 49,944
9 16,000 3,463 40,000 2,594 37,406
10 16,000 2,594 24,000 0 24,000
Residual
Payment 24,000 0 0 0 0
15. 15
Journal Entries: During Year 10
Debit Credit
Cash $16,000
Gross Investment in Lease $16,000
Unearned Income $2,594
Interest Income $2,594
To record the receipt of the unguaranteed residual value at the end of
lease term assuming fair value of the residual value is $24,000
Asset $24,000
Gross Investment in Lease $24,000
To record the receipt of lease payments and the amortization of
unearned income
16. 16
Impacts on Financial Statements
(End of Year 1)
Balance Sheet
Assets
Current assets:
Cash $16,000
Gross investment in sales-type lease 16,000
Noncurrent assets:
Gross investment in sales-type lease $152,000
PP&E (100,000)
Total assets $84,000
Liabilities
Current liabilities:
Unearned income $8,158
Noncurrent liabilities:
Unearned income $42,175
Total liabilities $50,333
Income Statement
Sales revenue $112,724
Cost of sales 87,724
Gross profit 25,000
Selling and administrative
expenses XXX
Income from operations XXX
Other revenues and gains
Interest income 8,667
Other expenses and losses XXX
Income from continuing
operations before income tax XXX
Changes in net income $33,667
ASC 840-30-50-4
17. 17
Impacts on Financial Statements
Balance Sheet Impact
Item
Sales-Type Lease
(FMV = $125,000)
Operating Lease
(FMV = $135,000)
Assets Total Assets
ROA
(Net Investment In Lease)
No Assets Recorded
Liabilities
Total Liabilities
D/E
(Unearned Income)
No Liabilities Recorded
18. 18
Impacts on Financial Statements
Income Statement Impact
Item
Sales-Type Lease
(FMV = $125,000)
Operating Lease
(FMV = $135,000)
Revenue Year 1
Year 2- 10
Gross Profit
Interest Revenue
(Declining)
Rental Revenue
Expense No Depreciation Expense Depreciation Expense
19. 19
Operating vs. Capital Lease
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
1 2 3 4 5 6 7 8 9 10
Year
Profit Comparison
Operating Lease Capital Lease
20. 20
Proposed New Lease Standards
Lease
Contract
≤12
Months?
Type of Asset?
Purchase
Option?
Election?
Simplified
Rules
Type A Lease
(Other than Property)
Yes
Yes Yes
NoNo
No
Type B Lease
(Property)
21. 21
Journal Entries under New Standards
Journal Entries at the Commencement Date
Journal Entries for the First Year
Lease Receivable $112,724
Residual Asset 12,276
Cost of Sales 87,724
Sales $112,724
Asset (at carrying value) 100,000
Cash $16,000
Residual Asset 851
Lease Receivable $8,184
Interest Revenue 8,667
22. 22
Effect on the Accounting Information System
System
Determin
e Lease
Type
Automated Application
Control
ApproveSystem
Data
Report
Agent
Approves
Agent
Reviews
IT Dependent
Manual Control
Input
Lease
Data
NoNo
System is pre-programmed with:
• Classification criteria
• Company election policy
Agents are trained to look for:
• Data input errors
• System errors
• Contract modifications
• Fraud
23. 23
Deal for a Dozer
Fair Value
$125,000
Sales-
Type
Lease
Increase
in Assets
and
Liabilities
Type A
Lease
under New
Lease
Standards
Changes
in Internal
Control
System
Questions?
24. 24
Fair Value ≠ Residual Value
• At the end of the lease
– If fair value of residual value < $24,000
– If fair value of residual value > $24,000
Asset (Fair Value) $23,000
Loss on Capital Lease 1,000
Gross Investment in Lease $24,000
Asset (Fair Value) $25,000
Gain on Capital Lease $1,000
Gross Investment in Lease 24,000
25. 25
Fair Value = $135,000
Terms
Lease Term 10 years
Lessor’s implicit rate 5.45%
Lease Type Operating lease
Annual lease payments $16,000
Unguaranteed residual value $24,000
Fair value of bulldozer $135,000
The first lease payment is made at the end of the year 1.
Each subsequent payment is made on Dec 31.
26. 26
Journal Entries
• Beginning of Lease Term
– No Journal Entries
• During Year 1 – Year 10
• Expiration of Lease Term
– No Journal Entries
Cash $16,000
Rent Revenue $16,000
Depreciation Expense $7,600
Accumulated Depreciation – Equipment $7,600
27. 27
Impacts on Financial Statements (Lessee)
Balance Sheet Impact
Item Sale-Type Lease
(FMV = $125,000)
Operating Lease
(FMV = $135,000)
Assets
Total Assets
ROA
(Leased Equipment)
No Assets Recorded
Liabilities
Total Liabilities
(Leased Liability)
D/E
(Declining as repayment)
No Liabilities Recorded
29. 29
New Revenue Recognition Standard
5 Step Process
Identify Contract With
Customer
Identify Separate
Performance Obligations
Determine the
Transaction Price
Allocate the Transaction
Price
Recognize Revenue
Contract Signed
Has Commercial
Substance
Approved and
Committed
Can Identify Each
Parties Rights
Identify Payment
Term
30. 30
New Revenue Recognition Standard
5 Step Process
Identify Contract With
Customer
Identify Separate
Performance Obligations
Determine the
Transaction Price
Allocate the Transaction
Price
Recognize Revenue
Provide Bulldozer to
be used for a 10-
year period
31. 31
New Revenue Recognition Standard
5 Step Process
Identify Contract With
Customer
Identify Separate
Performance Obligations
Determine the
Transaction Price
Allocate the Transaction
Price
Recognize Revenue
Based on the Fair
Market Value of the
Asset
Transaction Price is
$125,000
32. 32
New Revenue Recognition Standard
5 Step Process
Identify Contract With
Customer
Identify Separate
Performance Obligations
Determine the
Transaction Price
Allocate the Transaction
Price
Recognize Revenue
Only One
Performance
Obligation for Sable:
Delivery of the Asset
33. 33
New Revenue Recognition Standard
5 Step Process
Identify Contract With
Customer
Identify Separate
Performance Obligations
Determine the
Transaction Price
Allocate the Transaction
Price
Recognize Revenue
Recognize when
Obligation is Satisfied
Satisfied Immediately
Upon Transfer
Company Has Right
to Payment
Has Customer Gained
Control?
Physical Possession is
Transferred
Customer Has
Accepted Asset
34. 34
ASC 840-10-25-43 Lessor Application of Lease
Classification Criteria
25-43 If the lease at inception meets any of the four lease classification criteria in
paragraph 840-10-25-1 and both of the criteria in the preceding paragraph, it shall be
classified by the lessor as a sales-type lease, a direct financing lease, a leveraged lease, or
an operating lease as follows:
a. Sales-type lease. A lease is a sales-type lease if it gives rise to manufacturer’s or dealer’s
profit (or loss) to the lessor (that is, the fair value of the leased property at lease inception is
greater or less than its cost or carrying amount, if different) and meets either of the following
conditions:
1. It involves real estate and meets the criterion in paragraph 840-10-25-1(a) (in which
circumstance, neither of the criteria in paragraph 840-10-25-42 applies).
2. It does not involve real estate and meets any of the criteria in paragraph 840-10-25-
1 and both of the criteria in paragraph 840-10-25-42.
For implementation guidance on the interaction of lease classification and lessor
activities, see paragraph 840-10-55-41.
b. Direct financing lease. A lease is a direct financing lease if it meets all of the following
conditions:
1. It meets any of the criteria in paragraph 840-10-25-1 and both of the criteria in the
preceding paragraph.
2. It does not give rise to manufacturer's or dealer's profit (or loss) to the lessor.
3. It does not meet the criteria for a leveraged lease in (c).
35. 35
ASC 840-10-55-41 Implementation Guidance
Lease Classification and Lessor Activities
55-41 This guidance discusses the relationship between lease classification criteria and
certain lessor activities. Normally, sales-type leases will arise when manufacturers or dealers
use leasing as a means of marketing their products. Leases involving lessors that are primarily
engaged in financing operations normally will not be sales-type leases if they qualify under
paragraphs 840-10-25-1 and 840-10-25-42, but will most often be direct financing leases,
described in paragraph 840-10-25-43(b). However, a lessor need not be a dealer to realize
dealer's profit (or loss) on a transaction. For example, if a lessor, not a dealer, leases an asset
that at lease inception has a fair value that is greater or less than its cost or carrying amount,
if different, such a transaction is a sales-type lease, assuming the criteria referred to are met.
36. 36
ASC 840-30-30 Initial Measurement-Lessors
Gross Investment in a Sales-Type Lease or Direct Financing Lease
30-6 The lessor shall measure the gross investment in either a sales-type lease or direct
financing lease initially as the sum of the following amounts:
a. The minimum lease payments net of amounts, if any, included therein with respect to
executory costs (such as maintenance, taxes, and insurance to be paid by the lessor)
including any profit thereon
b. The unguaranteed residual value accruing to the benefit of the lessor. The estimated
residual value used to compute this amount shall not exceed the amount estimated at lease
inception except as provided in paragraph 840-30-30-7.
Sales-Type Leases
30-8 The lessor's net investment in a sales-type lease shall consist of the gross
investment (as measured in paragraph 840-30-30-6) minus the unearned income.
30-9 The lessor shall measure unearned income initially as the difference between the
gross investment in the sales-type lease and the sum of the present values of the two
components of the gross investment. The discount rate to be used in determining the
present values shall be the interest rate implicit in the sales-type lease.
30-10 The present value of the minimum lease payments (net of executory costs, including
any profit thereon), computed at the interest rate implicit in the lease, shall be recorded by the
lessor as the sales price.
37. 37
ASC 840-30-35 Subsequent Measurement-Lessors
Sales-Type Leases and Direct Financing Leases
35-22 A lessor shall amortize the unearned income on a sales-type lease to income over
the lease term to produce a constant periodic rate of return on the net investment in the lease
(the interest method). In a sales-type lease containing a residual value guarantee or a
termination penalty for failure to renew the lease at the end of the lease term, this method of
amortization described will result in a balance of minimum lease payments receivable at the
end of the lease term that will equal the amount of the residual value guarantee or termination
penalty at that date.
35-23 The lessor shall amortize the unearned income and initial direct costs on a direct
financing lease to income over the lease term to produce a constant periodic rate of return on
the net investment in the lease. A residual value guarantee or termination penalty that serves
to extend the lease term is excluded from minimum lease payments and is thus distinguished
from those residual value guarantees and termination penalties referred to in this paragraph.
In the event that a renewal or other extension of the lease term (including a new lease under
which the lessee continues to use the same property) renders the residual value guarantee or
termination penalty in a sales-type lease or direct financing lease inoperative, the existing
balances of the minimum lease payments receivable and the estimated residual value shall be
adjusted for the changes resulting from the revised agreement (subject to the limitation on the
residual value imposed by paragraph 840-30-35-25) and the net adjustment shall be charged
or credited to unearned income.
38. 38
ASC 840-30-35 (Continued)
35-24 The following guidance applies to a lessor's accounting for both sales-type leases
and direct financing leases and is organized as follows:
a. Estimated residual value
b. Lease modifications.
Estimated Residual Value
35-25 A lessor shall review the estimated residual value of a leased property at least
annually. If the review results in a lower estimate than had been previously established, the
lessor shall determine whether the decline in estimated residual value is other than temporary.
If the decline in estimated residual value is judged to be other than temporary, the accounting
for the transaction shall be revised using the changed estimate and the resulting reduction in
the net investment shall be recognized by the lessor as a loss in the period in which the
estimate is changed. An upward adjustment of the leased property's estimated residual value
(including any guaranteed portion) shall not be made.
39. 39
Deloitte Guidance
840-30-35 (Q&A 08) — Determining the Amount of Any Required Residual Value Write-Down
Question
If a residual value write-down is required, how should the amount of the write-down be
calculated?
Answer
The write-down is calculated by discounting the new estimate of the residual value at the
interest rate implicit in the lease and comparing that amount to the carrying amount of the
existing residual value (which will reflect accretion of present-value since the beginning of the
lease). A write-up of residual value is not permitted, regardless of the strength of the evidence
supporting a higher value.
40. 40
ASC 840-10-55 Implementation Guidance-Lessor
Defining Fair Value of the Leased Property
55-43 If the lessor is a manufacturer or dealer, the fair value of the property at lease
inception ordinarily will be its normal selling price, reflecting any volume or trade discounts that
may apply. However, the determination of fair value should be made in light of market
conditions prevailing at the time, which may indicate that the fair value of the property is less
than the normal selling price and, in some instances, less than the cost of the property.
41. 41
ASC 840-30-50 Disclosure-Lessors
50-4 If leasing, exclusive of leveraged leasing, is a significant part of the lessor's business
activities in terms of revenue, net income, or assets, all of the following information with respect
to sales-type and direct financing leases shall be disclosed in the financial statements or
footnotes:
a. All of the following components of the net investment in sales-type and direct financing
leases as of the date of each balance sheet presented:
1. Future minimum lease payments to be received, with separate deductions
for both of the following:
i. Amounts representing executory costs (including any profit
thereon) included in the minimum lease payments
ii. The accumulated allowance for uncollectible minimum lease
payments receivable.
2. The unguaranteed residual values accruing to the benefit of the lessor
3. For direct financing leases only, initial direct costs
4. Unearned income (see paragraphs 840-30-30-9 and 840-30-30-13).
b. Future minimum lease payments to be received for each of the five succeeding fiscal years
as of the date of the latest balance sheet presented
c. Total contingent rentals included in income for each period for which an income statement is
presented.
42. 42
Statement of Financial Accounting Concepts No. 5
Revenues and Gains
83. Further guidance for recognition of revenues and gains is intended to provide an acceptable
level of assurance of the existence and amounts of revenues and gains before they are
recognized. Revenues and gains of an enterprise during a period are generally measured by
the exchange values of the assets (goods or services) or liabilities involved, and recognition
involves consideration of two factors (a) being realized or realizable and (b) being earned, with
sometimes one and sometimes the other being the more important consideration.
a. Realized or realizable. Revenues and gains generally are not recognized until realized or
realizable.50 Revenues and gains are realized when products (goods or services),
merchandise, or other assets are exchanged for cash or claims to cash. Revenues and
gains are realizable when related assets received or held are readily convertible to known
amounts of cash or claims to cash. Readily convertible assets have (i) interchangeable
(fungible) units and (ii) quoted prices available in an active market that can rapidly absorb
the quantity held by the entity without significantly affecting the price.
b. Earned. Revenues are not recognized until earned. An entity's revenue-earning activities
involve delivering or producing goods, rendering services, or other activities that constitute
its ongoing major or central operations,51 and revenues are considered to have been
earned when the entity has substantially accomplished what it must do to be entitled to
the benefits represented by the revenues. Gains commonly result from transactions and
other events that involve no "earning process," and for recognizing gains, being earned is
generally less significant than being realized or realizable.
43. 43
Topic 842 Short-term Lease Definition
Short-Term Lease
A lease that, at the commencement date, has a maximum possible term under the contract,
including any options to extend, of 12 months or less. Any lease that contains a purchase
option is not a short-term lease.
842-10-25-14 A lessee may elect, as an accounting policy, not to apply the requirements in
Subtopic 842-20 to short-term leases. Instead, a lessee may recognize the lease payments in
profit or loss on a straight-line basis over the lease term. The accounting policy election for
short-term leases shall be made by class of underlying asset to which the right of use relates.
842-10-25-15 A lessor may elect, as an accounting policy, not to apply the requirements in
Subtopic 842-30, except for the requirements in paragraph 842-30-50-5(d), to short-term
leases. Instead, a lessor may recognize the lease payments in profit or loss over the lease
term on either a straight-line basis or another systematic basis, if that basis is more
representative of the pattern in which income is earned from the underlying asset. The
accounting policy election for short-term leases shall be made by class of underlying asset to
which the right of use relates.
44. 44
Topic 842 Type A Lease and Type B Lease Classification
842-10-25-6 If the underlying asset is not property, an entity shall classify a lease as a Type A
lease unless one of the following two criteria is met:
a. The lease term is for an insignificant part of the total economic life of the underlying
asset.
b. The present value of the lease payments is insignificant relative to the fair value of the
underlying asset at the commencement date.
842-10-25-7 If the underlying asset is property, an entity shall classify a lease as a Type B
lease unless one of the following two criteria is met:
a. The lease term is for the major part of the remaining economic life of the underlying asset.
b. The present value of the lease payments accounts for substantially all of the fair value of
the underlying asset at the commencement date.
45. 45
Topic 842 Changes on Sale-type Leases Reporting
Leases previously classified as direct finance or sale-type leases
s. For leases that were classified as direct finance or sales-type leases in accordance with
Topic 840, the carrying amount of the lease receivable at the beginning of the earliest
comparative period presented shall be the carrying amount of the net investment in the lease
immediately before that date in accordance with Topic 840.
t. For those leases, a lessor shall do all of the following:
1. Subsequently measure the lease receivable in accordance with paragraphs 842-30-35-
1(a), 2(a), and 2(c), 842-30-35-10, and 842-30-35-13.
2. Not apply the requirements in paragraphs 842-30-35-1(b) and 2(b), 842-30-35-3 through
35-8, and 842-30-35-11 through 35-12.
3. Classify the net investment arising from direct finance or sales-type leases as lease
receivables arising from Type A leases for the purposes of presentation and disclosure.
46. 46
Topic 842 Type A Leases Reporting
Lessee
For most leases of assets other than property (for example, equipment, aircraft, cars, trucks),
a lessee would classify the lease as a Type A lease and would do the following:
1. Recognize a right-of-use asset and a lease liability, initially measured at the present value
of lease payments
2. Recognize the unwinding of the discount on the lease liability as interest (interest expense)
separately from the amortization of the right-of-use asset.
Lessor
For most leases of assets other than property, a lessor would classify the lease as a Type A
lease and would do the following:
1. Derecognize the underlying asset and recognize a right to receive lease payments (the
lease receivable) and a residual asset representing the rights the lessor retains relating to the
underlying asset) separately listed!
2. Recognize the unwinding of the discount on both the lease receivable and the residual
asset as interest income over the lease term
3. Recognize any profit relating to the lease at the commencement date.
47. 47
Journal Entries for Lessee Under New Lease Standards
Journal Entries at the Commencement Date
Journal Entry at the End of Year 1
Right-of-Use Asset $112,724
Lease Liability $112,724
Interest Expense $7,816
Lease Liability 8,184
Cash $16,000
Amortization Expense $11,272
Right-of-Use Asset $11,272
48. 48
Topic 842 Type B Leases Reporting
Lessee
For most leases of property (that is, land and/or a building or part of a building), a lessee
would classify the lease as a Type B lease and would do the following:
1. Recognize a right-of-use asset and a lease liability, initially measured at the present value
of lease payments
2. Recognize a single lease cost, combining the unwinding of the discount on the lease
liability with the amortization of the right-of-use asset, on a straight-line basis.
Lessor
For most leases of property, a lessor would classify the lease as a Type B lease
and would apply an approach similar to existing operating lease accounting in which
the lessor would do the following:
1. Continue to recognize the underlying asset
2. Recognize lease income over the lease term typically on a straight -line basis.