NotesonLeaseAccountingunderUSGAAPIFRS(doc.docVIP

FASB 13 notes (bookmark) FASB 13 (as amended) - ACCOUNTING FOR LEASES (IFRS notes are at the end) Synopsis: A lease that transfers substantially all of the benefits and risks of ownership should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee and as a sale or financing by the lessor. US GAAP - CRITERIA FOR CAPITALIZATION: FOR LESSEE AND LESSOR: (must meet at least one) A1 - TITLE TRANSFERS. The lease transfers ownership of the property to the lessee by the end of the lease term. A2 - BARGAIN PURCHASE OPTION. The lease contains an option to purchase the leased property at a bargain price. A3 – ECONOMIC LIFE. The lease term is equal to or greater than 75% of the estimated economic life of the leased property. A4 – RECOVERY OF INVESTMENT. The present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased property less any investment tax credit retained by the lessor. FOR LESSOR ONLY: (must meet both) B1 - COLLECTIBILITY. Collectibility of the minimum lease payments is reasonably predictable. B2 - NO UNCERTAINTIES. No important uncertainties surround the amount of unreimburseable costs yet to be incurred by the lessor under the lease. EXCEPTIONS: USED PROPERTY: If lease term falls within the last 25% of the useful economic life of property, use only criteria A1 and A2 (plus B1 and B2 for lessor). REAL ESTATE: Use criteria A1 and A2 only for leases of land (plus B1 and B2 for lessor). If land value is 25% or more of value of leased land and buildings, separate land and building and apply criteria separately. Otherwise, ignore land and treat as building only. Sales-type lease of real estate possible only if criteria A1 (title transfer) is met. LEASE CLASSIFICATION FOR LESSEE Capital Lease - lease that meets any one of the first four criteria (A1 to A4). Operating Lease - lease that does not meet any of the first four criteria (A1 to A4) FOR LESSOR: Sales-type lease - lease that