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    Reviewer For Finals

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    Thyron John Alegar
    The document discusses key concepts in identifying and accounting for leases according to accounting standards. It defines a lease as a contract that conveys the right to use an asset for a period of time in exchange for consideration. The main requirements for a contract to be considered a lease are: the contract must be for an identified asset, the lessee must obtain substantially all the economic benefits from the asset, and the lessee must have the right to direct use of the asset.

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    Download as PDF, TXT or read online from Scribd

    Reviewer For Finals

    Uploaded by

    Thyron John Alegar
    30 views2 pages
    The document discusses key concepts in identifying and accounting for leases according to accounting standards. It defines a lease as a contract that conveys the right to use an asset for a period of time in exchange for consideration. The main requirements for a contract to be considered a lease are: the contract must be for an identified asset, the lessee must obtain substantially all the economic benefits from the asset, and the lessee must have the right to direct use of the asset.

    Original Description:

    Accounting for leases

    Original Title

    Reviewer for Finals

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    The document discusses key concepts in identifying and accounting for leases according to accounting standards. It defines a lease as a contract that conveys the right to use an asset for a period of time in exchange for consideration. The main requirements for a contract to be considered a lease are: the contract must be for an identified asset, the lessee must obtain substantially all the economic benefits from the asset, and the lessee must have the right to direct use of the asset.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views2 pages

    Reviewer For Finals

    Uploaded by

    Thyron John Alegar
    The document discusses key concepts in identifying and accounting for leases according to accounting standards. It defines a lease as a contract that conveys the right to use an asset for a period of time in exchange for consideration. The main requirements for a contract to be considered a lease are: the contract must be for an identified asset, the lessee must obtain substantially all the economic benefits from the asset, and the lessee must have the right to direct use of the asset.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Reviewer for Finals Note: not substantive if cannot be exercised

    throughout the period(only a particular date,


    Leases repairs, maintenance, or upgrade) ⁃
    (leasee) the default is not substantive
    Lease- contract that conveys the right to use an
    asset for a period of time. ⁃ in Right to obtain economic benefit
    exchange for consideration, (money, etc.) ● obtained substantially all the
    requirements: identified asset, substantial economic benefit 75%
    economic benefit, right to direct use ● having exclusive use of the asset
    ● the economic benefit is within
    Lessee- obtains the right to use. defined scope(right to use)
    Lessor- provides the right to use. ● Even Though it is required to
    pay additional consideration,it is
    Identifying a lease: still substantially beneficial.
    ● there is a right to control ( wala kang
    limitation, except protective rights ni Right to direct use(lessee)
    lessor) ● direct how and for what purpose the
    ● the asset is identified ( need na naka asset is being used ⁃
    identify kung anong klase yung ni lease ● the use is predetermined and the lessor
    mo) cannot change
    Note: right to operate does not grant the right to
    Right to control direct use. exemption to that is if the purpose is
    ● obtains substantially all the economic predetermined
    benefits.
    ● right to direct the use. Protective rights
    Identified asset contractual restrictions to protect the lessor
    ● explicitly stated ● maximum amount or limit where the
    ● implicitly specified the asset is made asset is used
    available for use ● Lessee is required to follow a particular
    Portion of asset operating procedure ]
    ● it should be physically distinct ● Requiring the lessee to inform the lessor
    ● otherwise, it is not identified asset about the changes of how the asset is
    (example pg. 284) di pwede na kahit ano used.
    lang.
    Lease term
    Substantive substitution rights ● non-cancellable period and together
    ● if it is meron nito si lessor, it is not with periods(option to extend or
    identified conditions, thus, di yon lease terminate) if reasonably certain to
    ● the lessor has the ability to substitute exercise
    within the period and the lessee cannot ● non-cancellable period(time the contract
    prevent it ⁃ is enforceable)
    ● the lessor would economically benefit ● no longer enforceable if one of the sides
    from the right to substitute terminates the lease without permission
    Option to terminate
    ● only the lessee has the right to ● amounts expected to pay under residual
    terminate- the right is considered in value (guaranteed)
    lease term ● price of purchase option if reasonably
    ● only the lessor has the right to certain
    terminate- the right is not considered in ● payment for penalties for terminating
    lease term (pfrs 16.27)

    Option to extend Lease payments do not include


    reasonably certain to exercise if: ● payments for non-lease elements
    ● the lease payment on extended is below ● payments for optional extension that is
    market rate not reasonably certain
    ● the lessee made a significant leasehold ● future changes in variable payments
    improvement with useful life longer (depends on future index)
    than the lease term ● variable payments linked to future sales
    or usage of asset
    Reasonably not certain to exercise an option
    to terminate:
    ● the cost of terminating lease is
    significant(relocation)
    ● the asset is important to the operation of
    the lessee

    shorter non-cancellable period = the lessee will


    exercise the right to extend = not to exercise
    right to terminate.
    Reason: cost associated to obtain replacement is
    higher
    Note: lease term starts at commencement date
    and includes rent-free periods.

    Recognition: lease liability and right-to-use is


    recognized at commencement date

    Right-to-use. xxx
    Lease liability. xxx
    Cash. xxx
    Decommissioning cost xxx

    Initial Measurement of lease liability ⁃


    present value of lease payment which includes;
    ● fixed payment less incentive receivable
    ● variable lease payment (initially
    depends on index)

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