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Finance Lease Model

The finance lease model requires the lessee to recognize an asset and corresponding liability based on the present value of lease payments and other costs. The right of use asset is initially measured at cost and can be depreciated based on useful life or lease term. The operating lease model allows for exemptions for short-term and low-value leases, with rentals treated as rent expense.

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8 views1 page

Finance Lease Model

The finance lease model requires the lessee to recognize an asset and corresponding liability based on the present value of lease payments and other costs. The right of use asset is initially measured at cost and can be depreciated based on useful life or lease term. The operating lease model allows for exemptions for short-term and low-value leases, with rentals treated as rent expense.

Uploaded by

mparas23-0544
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We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCE LEASE MODEL

 Lease – contract or a part of a contract that conveys the


right to use the underlying asset for a period in exchange
for consideration.
 Lessee controls the right to use an identified asset.
 Finance lease model – lessee shall recognize an asset
and corresponding liability.

COST OF RIGHT OF USE ASSET

 Present value of lease payments


 Fixed lease payments (rentals)
 Variable lease payments (variable rental)
 Price of purchase option that is reasonably to be
exercised.
 Guaranteed residual value – at the end of the lease
term, the asset will be return to the lessor.
 Termination penalties if the lease term reflects
exercise of a termination option (mas maaga umalis
kaysa sa nasa contract).
 Discount rate is the implicit rate known to the
lessee, if none, then use the incremental
borrowing rate.
 Lease bonus less any incentives
 Initial direct cost incurred by the lessee
 Estimated cost of dismantling, removing or restoring the
asset for which the lessee already has a present
obligation. Measured at prevent value.

Note:

 Right of use asset if presented as a separate line item in


the SFP (NCA).
 Right of use asset is initially measured at cost.
 Right of use asset is subsequently measured using the
cost model (silent).
 May use the revaluation model if the ROUA is PPE.
 May use the fair value model if the ROUA is
investment property.
 Depreciation of right of use asset (cost and revaluation
model)
 Based on useful life of asset if there is transfer of
title to the lessee at the end of lease term or purchase
option that is certain to be exercised.
 Otherwise, based on the shorter between useful life
and lease term.

OPERATING LEASE MODEL

Lessee may use the operating lease model under two


optional exemptions.

 Short-term lease – 12 months or less


 Low-value lease
- Asset is of low value when brand new, regardless of its
age. (computers, furniture, etc..)
- Not low-value lease if asset is not of low value then
brand new regardless of age.
- May have a term of more than 12 months.
 Rentals are treated as rent expense.

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