Scribd
Upload
126 views2 pages

Chapter 8 - Operating Lease

This document discusses accounting treatments for various items related to operating leases. It explains that for lessors, rent deposits are liabilities and lease bonuses create unearned rent income. For lessees, rent deposits are assets and lease bonuses create prepaid rent. It also discusses how leasehold improvements, leased property, initial direct costs, executory costs, and commissions are treated for lessors and lessees. Finally, it provides guidance on calculating average annual rent for leases with unequal payments or rent-free periods.

Uploaded by

looter198
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as RTF, PDF, TXT or read online on Scribd
126 views2 pages

Chapter 8 - Operating Lease

This document discusses accounting treatments for various items related to operating leases. It explains that for lessors, rent deposits are liabilities and lease bonuses create unearned rent income. For lessees, rent deposits are assets and lease bonuses create prepaid rent. It also discusses how leasehold improvements, leased property, initial direct costs, executory costs, and commissions are treated for lessors and lessees. Finally, it provides guidance on calculating average annual rent for leases with unequal payments or rent-free periods.

Uploaded by

looter198
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as RTF, PDF, TXT or read online on Scribd
You are on page 1/ 2

Chapter 8 - Operating Lease

Rent Deposit
For Lessor = Liability
For Lessee = Rent Deposit
Lease Bonus
For Lessor = Unearned Rent Income (amortized over lease term)
(credit to Rent Income)
For Lessee = Prepaid Rent (amortized over lease term) (debit to
Rent Expense)
Leasehold Improvement
For Lessee only = Depreciated over life of the improvement or
lease term, whichever is shorter (residual value is ignored)
Leased Property
For Lessor only = depreciate normally
Initial Direct Costs (deferred)
For Lessor = deferred amount is added to the CARRYING
AMOUNT of the leased asset and EXPENSED over the lease term
Recorded as:
Deferred Initial Direct Cost
xx
Amortized as:
Amortization of initial Direct cost
xx
Cash
xx
Deferred Initial Direct Cost
xx
Executory Cost (Property Taxes, Insurance, Maintenance Cost)
= to be Expensed outright by the party who paid it
Commission = expensed over the lease term
Problems with unequal Payments / Problems with Rent-free
a. Problems with Rent-Free but EQUAL ANNUAL PAYMENTS
1. Rental Fee x remaining years of lease (after rent-free period) =
Total Rental Fee
2. Total Rental Fee/total years of lease = Average Annual Rental
Fee
b. Problems with Rent-free and UNEQUAL ANNUAL PAYMENTS
1. Add all UNEQUAL RENTAL FEE to get the Total Rental Fee
(watch out for the first rental fee as it may be applicable only for
months and not the whole year)
2. Total Rental Fee/total years of lease = Average Annual Rental
Fee

Average Annual Rental Fee = recorded as Rent Income (Lessor) or


Rent Expense (Lessee)
Rent Receivable = difference between Average Annual Rental Fee
and Cash Received (Lessor) or Cash Paid (Lessee)

You might also like