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.

4.  A lease is an agreement whereby the
lessor conveys to the lessee in return for
a payment or series of payments the right
to use an asset for an agreed period of
time.

5.  The definition of lease includes contracts
for the hire of an asset which contains the
provision giving the hirer option to
acquire title to the asset upon fulfillment
of agreed conditions. These contracts are
sometimes known as hire purchase
contracts.

6.  Lessor is the person who originally owns
the rights to use the asset in other words
he owns the asset and allows the lessee
to use it.

7.  Lessee is the person who utilizes the
right to use the asset for a specific
period against a payment or series of
payments.

8. Operating
Lease
Lease
Finance
Lease

9. A lease is classified as a finance lease if it
transfers substantially all the risks and
rewards incident to ownership.

10. A lease is classified as an operating lease
if it does not transfers substantially all
the risks and rewards incident to
ownership.
Or A lease which is not a finance lease.

11. Operating Lease Finance Lease
1. Ownership is not transferred
by the end of the lease term.
1.Ownerhip is transferred by
the end of the lease term.
2. Lease doesn't contain
bargain purchase option.
2. Option to buy assets < MV at
the end of the lease term.
3. Cancelable 3. Non - Cancelable
4. Lessor bears all costs
e.g. Maintenance, repairs and
insurance
4. Lessee bears all costs
e.g. Maintenance, repairs and
insurance

12.  Minimum Lease Payments – are the
payments over the lease term that the
lessee is or can be required, to make
excluding contingent rent, cost of
services and taxes to be paid by and
reimbursed to the lessor.

13.  It is that portion of the lease payment
that is not fixed in amount but is based
on the future amount of a factor that
changes other than with the passage of
time for example. percentage of future
sales, amount of future use, and future
market rate of interest.

14.  Fair Value – is the sale price that both
the buyer and seller agree on willingly.
The two parties are happy with the price
and enter the transaction freely and
with full knowledge.

15.  Economic Life is either: the period over
which an asset is expected to be
economically usable by one or more
users;
 or the number of production or similar
units expected to be obtained from the
asset by one or more users.

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17.  The sale and lease back is a transaction
in which a company sells its Asset to
another company and then leases that
Asset.
 The company that sells that asset
becomes lessee, and the company that
purchases asset becomes lessor.

18.  Any profit or excess of sale proceeds
over the carrying amount shall not be
immediately recognized as income by
the seller that is lessee.
 Instead it shall be deferred and
amortized over the lease term (IAS-17
Para 59).

19. a. If the sale price is at fair value profit or
loss is recognized immediately.
b. If the sale price is above fair value the
excess shall be deferred and amortized
over the period of which the asset is
expected to be used.

20. c. If fair value is less than the carrying
amount the loss shall be recognized
immediately.

21. • Recording of operating lease in the books
of lessee:
 Asset is not recorded in the books of
lessee.
 Rentals paid are recorded as expense.

22.  Lessees should, in addition to the
requirements of IAS 32, Financial
Instruments: Disclosure and
presentation, make the following
disclosers for operating leases:

23. a) The total of future minimum lease
payments under non-cancelable
operating leases for each of the following
periods;
- not later than one year,
- later than one & not later than 5 years
- later than five years;

24. b) The total future minimum sublease
payments expected to be received
under non-cancelable sublease at the
balance sheet date;

25. c) Lease and sublease payments
recognized in income for the period,
with separate amounts for minimum
lease payments, contingent rents, and
sublease payments;

26. • Recording of operating lease in the books of
lessee:
Lessee records the asset at its fair value and a
liability with the same amount.
Lessee also claims depreciation on the leased
asset.