Leases

1
Leases

• Chapter 15 in Spiceland
• See example excel files examples
• File names Leases

2
Topics

• Operating Leases
• Capital Leases
• Determination of type of lease
• Determination of amount of liability
• Subsequent accounting
• Leasing Accounting Controversy

3
Leases

• Operating Lease Rental of asset
• Lease payments are treated as operating expense
• Capital Lease Nominally rental of assets,
  actually more like an installment purchase

4
Capital Lease

• FAS 13 one of the following criteria is met
  capital lease
• Transfer of ownership
• Bargain purchase clause
• PV of lease payments gt 90 of fair market value
• Lease term gt 75 of useful life

5
Capital Lease

• Initially recorded at PV of lease payments (asset
  liability)
• Periodically
• Interest depreciation expense (I/S)
• Reduction of liability (B/S)