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Chapter 12 - OPERATING LEASE - LESSOR

Chapter 12 focuses on operating leases from the lessor's perspective, detailing how to recognize rent income, depreciation, and other costs. Key points include the treatment of initial direct costs, refundable security deposits, and lease bonuses. Two examples illustrate the accounting for rent income and the impact of free rent periods on financial statements.

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12 views4 pages

Chapter 12 - OPERATING LEASE - LESSOR

Chapter 12 focuses on operating leases from the lessor's perspective, detailing how to recognize rent income, depreciation, and other costs. Key points include the treatment of initial direct costs, refundable security deposits, and lease bonuses. Two examples illustrate the accounting for rent income and the impact of free rent periods on financial statements.

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hey its me gracefully grace
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Chapter 12 - OPERATING LEASE: LESSOR

Chapter 12 Operating Lease: Lessor


 Finance Lease - more complicated
 FOCUS ON: Operating Lease
o Lesse: Nagrerent
o Lessor: Nagpapa-rent (OUR POV)
 Ikaw ang tumatanggap ng bayad
 A bonus chapter only
 Landlord; collecting rent

Key Points
A. Recognize as Rent Income using systematic basis.

B. Recognize Depreciation.

C. Other executory cost shall be expensed outright.

D. Initial direct cost is recognized over the lease term, and any unamortized cost
shall be added to the carrying amount of the asset.

E. Refundable security deposit is a liability

F. Lease bonus paid by the lessee shall be recognized as unearned rent income to
be amortized over the lease term.
o Lease bonus Usually happens when There are a lot of potential lessees
o Guisto mo makuha yung asset na gusto mong i-lease; Ikaw ang priority;
magbibigay ng bonus
__________________________________________________________________________________________
EXAMPLE # 1:
 On March 31, 2020, Dosan Company purchased a machine for 2,400,000 for the
purpose of leasing it to others with expected useful life of 10 years and will use
straight line method in depreciating such asset.
o The machine was leased to JP Company on April 1, 2020 for 4 years at a
monthly rental of 36,000.
o Dosan Company paid 120,000 initial direct costs associated in the lease
agreement.
o YEARLY PAYMENT OF RENTALS

Machinery 2,400,000
Cash 2,400,00
0

Cash 324,000
Rent Income (36,000 x 9mos) 324,000
Deferred - Initial Direct Cost - IDC 120,000
Cash 120,000

Amortization - IDC (120,000/4)*9/12 22,500


Deferred IDC 22,500

Depreciation Expense 180,000


Accumulated Depreciation (2.4M/10) * 180,000
9/12

Cost 2,400,000
LESS: Accumulated Depreciation (180,000)
Carrying Amount 2,220,000
ADD: Deferred IDC 97,500
Adj. Carrying Amount 2,317,500

Rent Income 324,000


Less: Depreciation 180,000
Less: Amortization IDC (120,000/4)*9/12 22,500
Net Rent Income 121,500
o ANG AMORTIZATION ay kapatid ni DEPRECIATION EXPENSE*

__________________________________________________________________________________________
EXAMPLE # 2:
Lessor granted Lessee a nine-month free rent under a 5-year operating lease contract.
 The lease is effective on April 1, 2020 and provides monthly rental of 100,000
beginning January 1, 2021.
o For the 9 month long gap of a free rent, we will have an income/entry

o 5 YEARS = 60 MONTHS
 Free rent = 9 months
 60 - 9 = 51 months

o Total Rent 100,000 * 51mos = P5,100,000

o Yearly Rent 5.1M/5years = 1,020,000


 2020 = 1,020,000/12 *9 = 765,000 (April 1 - Dec. 31)

2020
Rent Receivable 765,000
Rent Income 765,000
2021
Cash (100,000*12) 1,200,000
Rent Income 1,020,00
0
Rent Receivable 180,000
2022
Cash (100,000*12) 1,200,000
Rent Income 1,020,00
0
Rent Receivable 180,000
2023
Cash (100,000*12) 1,200,000
Rent Income 1,020,00
0
Rent Receivable 180,000
2024
Cash (100,000*12) 1,200,000
Rent Income 1,020,00
0
Rent Receivable 180,000
2025 - March 31
Cash (100,000*3) 300,000
Rent Income (1,020,000*3/12) 255,000
Rent Receivable 45,000

Rent Receivable = 180,000 * 720,00


4 0
3 months 45,000
Total 765,00
0

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