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.
The Auditors Responsibilities Relating to Fraud in an Audit of Financial Stat...Dr. Soheli Ghose Banerjee
This presentation is an overview of SA 240 (R). Prepared with Prof. S. Sircar.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
The Auditors Responsibilities Relating to Fraud in an Audit of Financial Stat...Dr. Soheli Ghose Banerjee
This presentation is an overview of SA 240 (R). Prepared with Prof. S. Sircar.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
Control accounts the account which represents a particular sub ledger, sales ledger and purchases ledger control accounts.
At the end of an accounting period the accounts are balanced off and a trial balance prepared to check the accuracy of the book keeping entries. If a trial balance fails to balance this usually indicates that an error or errors may have been made and needs to be identified. As the business expands the accounting requirements increase which may lead to more errors occurring which are very difficult to find.
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
Control accounts the account which represents a particular sub ledger, sales ledger and purchases ledger control accounts.
At the end of an accounting period the accounts are balanced off and a trial balance prepared to check the accuracy of the book keeping entries. If a trial balance fails to balance this usually indicates that an error or errors may have been made and needs to be identified. As the business expands the accounting requirements increase which may lead to more errors occurring which are very difficult to find.
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
Lease Accounting: Preparing Your Business for 2022Citrin Cooperman
Making a smooth transition to the new lease accounting standards and putting new practices in place for the future is a top priority for any business as they plan for 2022. During this webinar session, we reviewed how you can handle and prepare to navigate your business through the new lease accounting standards.
Topics included:
- What private companies should think about for 2022
- How the lease accounting standards can impact your financial
statements, financial covenants, and taxes
- Identifying opportunities for your business due to the new lease
accounting standards
[Podcast] Time to prepare... for lease accounting changesJLL
The lease accounting changes will have a significant impact on your business - from finance to operations to technology! Don’t wait to begin the planning process. Learn from a panel of real estate and accounting experts in a discussion on the key aspects of the revised accounting requirements and their impact on your bottom line.
Leases are an important and flexible source of financing— listed companies using IFRS Standards or US GAAP estimated to have US$3.3trillion lease commitments
Over 85% of lease commitments do not appear on balance sheet today
Therefore, it is difficult for investors and others to:
Get accurate picture of entity’s lease assets and liabilities
Compare companies that lease assets with those that buy
Estimate the amount of off balance sheet obligations: often
overestimated
Leases create assets and liabilities
Most leases are not reported on the balance sheet
Long-term liabilities of heaviest users of off balance sheet leases1 understated by:
26% Europe
22% North America
32% Asia Pacific
Huge variation across and within industries
A lease conveys the right to use an asset for a period of time in exchange for cash payments
Lessee reports lease assets and liabilities on balance sheet, except for short-term and for low-value asset leases, at present value of future lease payments
Discount rate: the rate implicit in the lease, or, if rate implicit not available, lessee’s incremental borrowing rate
Exclude variable payments and most optional payments
Portfolio application, simplified reassessment
Right of Use (ROU) Asset
Balance sheet presentation separately as an asset
Depreciated over the life of the lease
Depreciation carried in profit and loss
Reassessed for impairment
Liability
Balance sheet presentation separately as a liability
Interest expense (discount unwind) through profit and loss as interest
Simplified reassessment
Balance sheet
ROU assets together with PPE or as own line item
Lease liabilities in accordance with IAS 1
Income statement
Depreciation of all leased assets
Interest expense for all lease liabilities
Cash flow statement
Principal within financing activities
Interest within either operating or financing activities (IAS 7
option)
Subleases—Intermediate lessor
Account for head lease and sublease as two separate
contracts
Classify a sublease with reference to the ROU asset arising from the head lease
Should not offset lease assets and liabilities, or income and
expenses, unless meets existing IFRS guidance for offsetting
Sale and leaseback transactions
Sale must meet the requirements in IFRS 15
Seller/lessee recognises only gain related to rights transferred
Adjustment made for off market terms
In essence, no change to lessor accounting in IAS 17
Feedback on 2013 ED
Lessor accounting in IAS 17 is not broken
Concerns about cost and complexity
IFRS 16: enhanced disclosures
Information about the residual value risk
Operating leases: separate disclosures for leased assets and assets used by a lessor for other than leasing
IFRS 16 effective for annual periods beginning on or after 1 January 2019
Early application permitted if IFRS 15 Revenue from
Contracts with Customers applied
If cumulative catch-up transition method elected:
No restatement of comparatives
No need to apply IFRS 16 to leases ending within 12 months
Simplified mea
This is the presentation deck from Real Estate Investing 101: Leasing, PeerRealty's third in a series of on-demand educational videos. In this series, PeerRealty Head of Investments Jeff Rothbart takes viewers through the fundamentals of real estate investing, and discusses some of the key metrics that real estate investors should consider. This Leasing course discusses how commercial real estate leases are structured, and discuss which lease provisions real estate investors should be aware of.
You can view this webinar at http://resources.peerrealty.com/real-estate-investing-101-leasing
Accounting for Leases
Unit-III
Leasing Environment:
A lease is a contractual agreement between a lessor and a lessee. This arrangement gives the lessee the right to use specific property, owned by the lessor, for a specified period of time. Lessee makes the payment to the lessor in return over the lease term for the use of the property.
The largest group of leased equipment involves Information technology, Transportation (trucks, motor cars), Construction and Agriculture.
Who are the Lessors? The lessors that own this property generally fall into one of following three categories:
1. Banks.
2. Captive leasing companies.
3. Independents.
Advantages of Leasing:
1. 100% financing at Fixed Rates: Leases are often signed without initial amount from the lessee. In addition, lease payments often remain fixed which protects the lessee against inflation and increases in the cost of money.
2. Protection against Obsolescence: Leasing equipmentreduces risk of obsolescence to the lessee, and in many cases passes the risk of residual value to the lessor.
3. Flexibility: Lease agreements may contain less restrictive provisions than other debt agreements. For example, the duration of the lease may be anything from short period of time to the entire expected economic life of the asset. The payment of rent in most cases is set to enable the lessor to recover the cost of the asset plus a fair return over the life of the lease.
4. Less Costly Financing: Some companies find leasing cheaper than other forms of financing. This may reduce the tax burden of the companies. Through leasing, the leasing companies or financial institutions use these tax benefits. They can pass some of these tax benefits back to the user of the asset in the form of lower rental payments.
5. Tax Advantages: For financial reporting purposes companies do not report an asset or a liability for the lease arrangement. For tax purposes, however, companies can capitalize and depreciate the leased assets.
6. Off-Balance-Sheet Financing: Some leases do not add debt on a balance sheet or affect financial ratios. But they may be added to borrowing capacity.
Accounting by the Lessee: Lessee capitalizes a lease; it records an asset and a liability generally equal to the present value of the rental payments. Lessor having transferred substantially all the benefits and risks of ownership recognizes a sale by removing the asset from the balance sheet and replacing it with a receivable.
Capitalization Criteria (Lessee): In order to record a lease as a capital lease, the lease must be non cancelable. In addition, it must meet one or more of the following four criteria.
1. Transfers ownership to the lessee.
2. Contains a bargain purchase option.
3. Lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.
4. The present value of the minimum lease payments (excluding executor costs) equals .
LIVE EVENT - 3rd Annual Fall Construction Risk Update - September 30Rea & Associates
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Instructions for Submissions thorugh G- Classroom.pptxJheel Barad
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Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
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Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
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Biological screening of herbal drugs: Introduction and Need for
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The Basic Of Lease Accounting
1. ELA Lease Accountants Conference 2004
The Basics of
Lease Accounting
Joe Sebik, VP - Global Originations & Structuring
J. P. Morgan Leasing, Inc.
(212) 899 - 1249
joseph.p.sebik@jpmorgan.com
Howard Thompson, Director - Pricing & Economics
Key Equipment Finance
(518) 257 – 8248
howard.k.thompson@key.com
1
ELA Lease Accountants Conference 2004
2. Course Outline
• Definition of a lease
• The lease versus buy decision
• Types of leases
• Lease classification
• Lease examples
• Accounting treatment of leases
• Q&A
2
ELA Lease Accountants Conference 2004
3. What Is a Lease?
• An agreement that conveys the right to use
property, generally for a specified period of time
• Parties to a lease are…
• Lessor—owner of the asset who receives payments
• Lessee—user of the asset who makes payments
3
ELA Lease Accountants Conference 2004
4. Lease Versus Buy
For lessees…
For lessors…
• To reduce the cost of
capital
• To manage taxes
• Retain tax advantages of
asset ownership to shelter
income
• To obtain 100% financing
• Retain residual value
• To manage assets
• Provide creative financing
alternatives
• Potential off-balance sheet
treatment
• To gain convenience and
efficiency
4
ELA Lease Accountants Conference 2004
5. Types of Leases
Lessee’s point of view…
Lessor’s point of view…
• Operating lease
• Operating lease
• Capital lease
• Direct finance lease
• Sales-type lease
• Leveraged lease
5
ELA Lease Accountants Conference 2004
6. Lease Classification
Criteria
• A lease is a finance or capital lease if it meets any one of the
following criteria…
1. Lease transfers title
2. Lease contains a bargain purchase option
3. Lease term is ≥75% of the estimated useful life of the leased asset
4. Present value of the minimum lease payments is ≥90% of the fair
value of the leased asset
• In addition to the lease criteria, a lease must meet both of the
following in order for a lessor to classify it as a finance lease…
• Collectibility is reasonably assured
• No important uncertainties exist concerning any future obligations
of the lessor
6
ELA Lease Accountants Conference 2004
7. Criteria #2
Bargain Purchase Option
• An option price that is considered to be
sufficiently below expected fair value (the sale
price in an arms-length transaction) so as to make
the exercise of the option appear to be reasonably
assured at inception
7
ELA Lease Accountants Conference 2004
8. Criteria #3
75% Test
• Lease term—fixed, non-cancelable term during which the
lessee can be compelled to make payments plus…
• All periods for which failure to renew the lease imposes a
penalty on the lessee in such amounts that a renewal appears
to be reasonably assured
OR
• Periods covered by ordinary renewal options preceding a
bargain purchase option
• Any periods covered by a bargain renewal option
• Estimated useful life—estimated remaining period during
which the asset is expected to be economically useful
8
ELA Lease Accountants Conference 2004
9. Criteria #4
90% Test
• Minimum lease payments (MLPs) include…
• The payments required or expected to be made by the
lessee during the lease term
• Amounts guaranteed by the lessee, plus (lessors only)
amounts guaranteed at inception by third parties
• Penalties the lessee must pay for failure to renew or
extend
• A penalty is any requirement of the lessee to
disburse cash, incur or assume a liability, perform
services, surrender or transfer an asset, or right to
an asset, or otherwise forego an economic benefit
or suffer an economic detriment
9
ELA Lease Accountants Conference 2004
10. Criteria #4 (cont.)
90% Test
• MLPs do not include contingent rentals
• These are rent payments that are not fixed but are
dependent on other factors or circumstances
• The rate used in present valuing the MLPs by…
• The lessor is the implicit rate
• The lessee is the incremental borrowing rate unless the
implicit rate is known
10
ELA Lease Accountants Conference 2004
11. Operating Leases
Balance Sheet
Lessor
Lessee
Leased asset is recorded at cost
and is included in or near
property, plant and equipment,
net of accumulated depreciation
No asset or liability recorded
11
ELA Lease Accountants Conference 2004
12. Operating Leases
Income Statement
Lessor
Lessee
Lease income recognized on a
straight-line basis over life of the
lease (accrue rent income if rents
are uneven)
Lease expense recognized on a
straight-line basis over life of the
lease (accrue rent expense if
rents are uneven)
Depreciation recorded in
accordance with company’s
depreciation policy
N/A
Initial direct costs (IDCs) are
deferred and amortized again
income over the lease term
N/A
IDCs are costs incurred by the lessor
in negotiating the lease transaction
(e.g., commissions, legal fees, etc.)
12
ELA Lease Accountants Conference 2004
13. Operating Leases
Disclosures
Lessor
Lessee
Cost or carrying amount and
accumulated depreciation
N/A
Minimum future rentals in total
for each of the next 5 years and
total
Minimum future rentals in total
for each of the next 5 years and
total
13
ELA Lease Accountants Conference 2004
14. Operating Lease Example
Assumptions:
Fair market value (FMV)
$100,000
Equipment cost
$100,000
Monthly rent:
• Months 1-12
$2,500
• Months 13-24
$3,000
• Months 25-36
$3,500
Term in months
36
Estimated residual value
Lessor classification:
Operating lease because PV of MLPs <90% of FMV
14
ELA Lease Accountants Conference 2004
$20,000
15. Operating Lease Example
Monthly lease income:
$2,500
x
12 mo
=
$30,000
+
$3,000
x
12 mo
=
$36,000
+
$3,500
x
12 mo
=
$42,000
Total
=
$108,000
36 mo
=
$3,000
Equipment cost
=
$100,000
Less: residual value
=
($20,000)
Total depreciation
=
$80,000
=
$2,222
÷
Monthly depreciation expense:
÷
15
ELA Lease Accountants Conference 2004
36 mo
16. Operating Lease Example
Lessor Accounting
entries:
Record investment:
DR.
Operating lease cost
$100,000
Cash [to book asset]
Monthly:
Accrued rent
$100,000
$3,000
Lease income
Depreciation expense
$3,000
$2,222
Accumulated depreciation
Cash* (months 1-12)
Accrued rent* (months 1-12) [collection of
rent]
*Amounts should reflect actual cash flows
16
ELA Lease Accountants Conference 2004
(CR.)
$2,222
$2,500
$2,500
17. Operating Lease Example
Financial Statements
Income Statement
Year 1
Lease income
$
Depreciation expense
Pre-tax income
36,000
Year 2
$
(26,667)
$
9,333
36,000
ELA Lease Accountants Conference 2004
$
(26,667)
$
9,333
Note: Example ignores income taxes and interest cost to fund asset.
17
Year 3
36,000
(26,666)
$
9,334
18. Operating Lease Example
Financial Statements (cont.)
Balance Sheet
Year 1
Cash
$
30,000
Year 2
$
66,000
Year 3
$
108,000
Investment in leases:
• Operating lease cost
100,000
100,000
100,000
• Accumulated deprecation
(26,667)
(53,334)
(80,000)
Net lease investment
73,330
46,666
20,000
Accrued rents
6,000
6,000
--
Total assets
$
109,333
$
118,666
$
128,000
Common stock
$
100,000
$
100,000
$
100,000
Retained earnings
Total liabilities and equity
9,333
$
109,333
18
ELA Lease Accountants Conference 2004
18,666
$
118,666
28,000
$
128,000
19. Direct Finance or Capital Leases
Balance Sheet
Lessor
Direct Finance Lease
Investment in the lease is
recorded at FMV, FMV = carrying
cost
Lessee
Capital Lease
Investment in asset and
obligation is recorded at an
amount equal to the present
value of the MLPs
Investment consists of:
Asset is included in or near
1. Sum of the MLPs, including
property, plant and equipment,
any residual value guarantees net of accumulated depreciation
and
2. The estimated residual value
19
ELA Lease Accountants Conference 2004
20. Direct Finance or Capital Leases
Income Statement
Lessor
Direct Finance Lease
Lessee
Capital Lease
Lease income recognized to
produce a constant rate of return
on the investment balance over
the life of the lease
Depreciation on the asset is
recorded in accordance with the
company’s depreciation policy
Initial direct costs are deferred
and amortized into income over
the lease term
Lessee payments over the lease
term are prorated between
interest expense and the
reduction of the obligations
20
ELA Lease Accountants Conference 2004
21. Direct Finance Lease Example
Assumptions:
Fair market value
$100,000
Equipment cost
$100,000
Monthly rent
Term in months
Estimated residual value
Lessor classification:
Direct finance lease because PV of MLPs ≥90% of FMV
21
ELA Lease Accountants Conference 2004
$3,700
36
$20,000
23. Direct Finance Lease Example
Monthly payment = $3,700
Mo
Asset Value
Interest
Earned
Principal
Paydown
1
100,000
2,228
1,473
2
98,528
2,195
1,505
3
97,022
2,161
1,539
4
95,483
2,127
1,573
5
93,910
2,092
1,608
6
92,302
2,056
1,644
7
90,658
2,019
1,681
8
88,978
1,982
1,718
9
87,260
1,944
1,756
10
85,503
1,905
1,795
11
83,708
1,865
1,835
12
81,872
1,824
1,876
Total income for
year 1 = $24,398
23
ELA Lease Accountants Conference 2004
24. Direct Finance Lease Example
Lessor Accounting
entries:
Record investment:
DR.
Contracts receivable*
Unguaranteed residual
$133,200
$20,000
Cash
$100,000
Unearned income
Month #1:
Unearned income
$53,200
$2,228
Lease income ([to book income]
Cash
$2,228
$3,700
Contracts receivable [to book rent received]
Month #2:
Unearned income
$3,700
$2,195
Lease income
Cash
$2,195
$3,700
Contracts receivable
24
(CR.)
*Total rents 36 months x $3,700 = $133,200
ELA Lease Accountants Conference 2004
$3,700
25. Direct Finance Lease Example
Financial Statements
Income Statement
Year 1
Year 2
Year 3
Lease income
$
24,398
$
18,343
$
10,459
Pre-tax income
$
24,398
$
18,343
$
10,459
Note: Example ignores income taxes and interest cost to fund asset.
25
ELA Lease Accountants Conference 2004
26. Direct Finance Lease Example
Financial Statements (cont.)
Balance Sheet
Year 1
Cash
$
44,400
Year 2
$
88,800
Year 3
$
133,200
Investment in leases:
• Contracts receivable
88,800
44,440
--
• Unguaranteed residual
20,000
20,000
20,000
• Unearned income
(28,802)
(10,459)
--
Net lease investment
79,998
53,941
20,000
Total assets
$
124,398
$
142,741
$
153,200
Common stock
$
100,000
$
100,000
$
100,000
Retained earnings
Total liabilities and equity
24,398
$
124,398
26
ELA Lease Accountants Conference 2004
42,741
$
142,741
53,200
$
153,200
27. Sales-Type Leases
Accounting
• Same as direct finance lease except FMV is not
equal to carrying cost
• Difference between FMV and carrying cost is
recognized as a gain or loss at the inception of the
lease
27
ELA Lease Accountants Conference 2004
28. Sales-Type Lease Example
Assumptions:
Fair market value
Equipment cost
Monthly rent
$100,000
$95,000
$3,700
Term in months
Estimated residual value
Lessor classification:
36
$20,000
Sales-type lease because PV of MLPs ≥90% of FMV and $5,000
dealer profit
28
ELA Lease Accountants Conference 2004
29. Sales-Type Lease Example
Lessor Accounting
entries:
Record investment:
DR.
Contracts receivable
Unguaranteed residual
(CR.)
$133,200
$20,000
Sales-type gain
$5,000
Inventory
Unearned income
Month #1:
$95,000
$53,200
Unearned income
$2,228
Lease income
Cash
$2,228
$3,700
Contracts receivable
Month #2:
Unearned income
$3,700
$2,195
Lease income
Cash
$2,195
$3,700
Contracts receivable
29
ELA Lease Accountants Conference 2004
$3,700
30. Sales-Type Lease Example
Financial Statements
Income Statement
Year 1
Sales-type gain
$
Lease income
Pre-tax income
5,000
Year 2
$
24,398
$
29,398
--
ELA Lease Accountants Conference 2004
$
18,343
$
18,343
Note: Example ignores income taxes and interest cost to fund asset.
30
Year 3
-10,459
$
10,459
31. Sales-Type Lease Example
Financial Statements (cont.)
Balance Sheet
Year 1
Cash
$
44,400
Year 2
$
88,800
Year 3
$
133,200
Investment in leases:
• Contracts receivable
88,800
44,440
--
• Unguaranteed residual
20,000
20,000
20,000
• Unearned income
(28,802)
(10,459)
--
Net lease investment
79,998
53,941
20,000
Total assets
$
124,398
$
142,741
$
153,200
Common stock
$
95,000
$
95,000
$
95,000
Retained earnings
Total liabilities and equity
23,398
$
124,398
31
ELA Lease Accountants Conference 2004
47,741
$
142,741
58,200
$
153,200
32. Return on Investment Comparison
Year 1
Operating lease
Pre-tax income
Year 2
Year 3
$9,333
$9,333
$9,334
$86,667
$60,000
$33,333
11%
16%
28%
Pre-tax income
$24,398
$18,343
$10,459
Average investment balance
$89,999
$66,970
$36,971
27%
27%
27%
Average investment balance
Return on average investment
Direct finance lease
Return on average investment
• This demonstrates why lessors strive to achieve direct finance
lease classification
• The earnings pattern is more consistent through the term of the
lease (not back ended)
32
ELA Lease Accountants Conference 2004