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Lease Accounting: BY Faresh Juby Induja Navami Jacob

The document defines key terms related to lease accounting, including definitions of finance lease, non-cancellable lease, inception of the lease, lease term, fair value, economic life, useful life of a leased asset, residual value, guaranteed residual value, unguaranteed residual value, gross investment in the lease, unearned finance income, net investment in the lease, interest rate implicit in the lease, and lessee's incremental borrowing rate of interest. It also defines contingent rent.

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Faresh Haroon
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78 views5 pages

Lease Accounting: BY Faresh Juby Induja Navami Jacob

The document defines key terms related to lease accounting, including definitions of finance lease, non-cancellable lease, inception of the lease, lease term, fair value, economic life, useful life of a leased asset, residual value, guaranteed residual value, unguaranteed residual value, gross investment in the lease, unearned finance income, net investment in the lease, interest rate implicit in the lease, and lessee's incremental borrowing rate of interest. It also defines contingent rent.

Uploaded by

Faresh Haroon
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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LEASE ACCOUNTING

BY Faresh Juby Induja Navami jacob

DEFINITIONS:LEASE:- 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. FINANCE LEASE:- A lease that transfers substantially all the risk and rewards incident to ownership of an asset. NON-CANCELLABLE LEASE:- A lease that is cancellable only: a) Upon the occurrence of some remote contingency; b) With the permission of the lessor; c) If the lease enters into a new lease for the same or an equivalent asset with the same lessor; d) Upon payment by the lease of an additional amount such that, at inception, continuation of the lease is reasonably certain. INCEPTION OF THE LEASE:- The earlier of the date of the lease agreement and the date of a commitment by the parties to the principal provision of the lease.

LEASE TERM:- The non-cancellable period for which the lessee has agreed to take on lease the asset together with any further period for which the lessee has the option to continue the lease of the asset, with or without further payment. FAIR VALUE:- it is the amount for which an asset could be exchanged or a liability settled between the knowledgeable, willing parties in an arms length transaction. ECONOMIC LIFE:- it is either: a) The period over which an asset is expected to be economically usable by one or more users; b) The number of production or similar units expected to be obtained from the asset by one or more users. USEFUL LIFE OF A LEASED ASSET:- it is either: a) The period over which the leased asset is expected to be used by the lessee; b) The number of production or similar units expected to be obtained from the use of the asset by the lessee. RESIDUAL VALUE OF A LEASED ASSET:- it is the estimated fair value of the asset at the end of the lease term.

GUARANTEED RESIDUAL VALUE:a) In case of lessee, that part of residual value which is guaranteed by the lessee or by a party on behalf of the lessee. b) In the case of lessor, that part of residual value which is guaranteed by or on behalf of the lessee, or by the independent third party who is financially capable of discharging the obligation under the guarantee.
UNGUARANTEED RESIDUAL VALUE OF A LEASED ASSET:- The amount by which the residual value of the asset exceeds its guaranteed residual value. GROSS INVESTMENT IN THE LEASE:- The aggregate of the minimum lease payments under a finance lease from the standpoint of the lessor and any unguaranteed residual value accruing to the lessor. UNEARNED FINANCE INCOME:- The difference between: a) The gross investment in the lease; b) The present value of: i. The minimum lease payment under a finance lease from the standpoint to the lessor ii. Any unguaranteed residual value accruing to the lessor; at the interest rate implicit in the lease.

NET INVESTMENT IN THE LEASE:finance income.

The gross investment in the lease less unearned

INTEREST RATE IMPLICIT IN THE LEASE:- the discount rate that, at the inception of the lease, causes the aggregate present value of: i. The minimum lease payment under a finance lease from the standpoint to the lessor ii. Any unguaranteed residual value accruing to the lessor; to be equal or fair value of the leased asset. LESSEES INCREMENTAL BORROWING RATE OF INTEREST:- The rate of interest lessee would have to pay on a similar lease or, if that is not determinable , the rate that, at the inspection of the lease the lessee would incur to borrow over a similar term, and with a similar security, the fund necessary to purchase the asset. CONTINGENT RENT:- It is that portion of the lease payments that is not fixed in amount but is based on a factor other than just the passage of time.

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