For initial recognition, both US GAAP and IFRS differentiate between finance and operating leases. US GAAP calls for a bright-line test to distinguish between capital and operatin…
How do lessors account for direct-financing and sales-type leases?
The two major differences in the accounting treatment of a direct-financing lease and a sales-type lease are the gain or loss on the sale of the asset – there is no manufacturer’s…
How do lessees classify leases under ASC 842 and IFRS 16?
Lessees are required to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets under both ASC 842 and IFRS 16. The standards cal…
How do lessees classify leases under ASC 840 and IAS 17?
US GAAP (ASC 840) calls for capital lease classification by lessees if the lease term is equal to or greater than 75% of the asset’s economic life or the present value of the lease…
How do lessees account for leases?
For assets under operating leases, lessees recognize neither an asset nor a payment obligation on their balance sheet; instead, lease payments are recorded as expense when due. Be…
How are operating cash flows determined?
The cash flows from operating activities can be presented under the direct or the indirect method. The direct method is the preferred method because the information it provides is…
How are leveraged leases accounted for under US GAAP?
The lessor’s liability to the third-party debt participant is offset against its lease receivables from the lessee and the lessor reports an asset only if the lease receivable is g…
How are leases taxed?
Leasing practices and classification of leases by lessors and lessees for tax purposes vary widely from country to country and depend primarily on the intended ultimate ownership o…
How are leases depreciated?
Accounting depreciation is the periodic allocation of the cost of a tangible asset over its estimated economic life and reduction of the asset’s carrying value in accordance with f…
How are lease payments structured?
A lease payment structure reflects a lease’s payment schedule and is dependent on the transaction size, the number of payment periods, payment frequency and the lease term. Lease…
How are investments accounted for?
A direct or indirect investment of 20% to 50% of the voting rights of a company – an associated company – should enable an investor to significantly influence the operating and fin…
How are intangible assets accounted for?
An intangible asset is an identifiable nonmonetary asset without physical substance that has value limited to the rights and expected benefits that its possession gives its owner. …
How are financial instruments classified under IFRS?
IFRS 9 Financial Instruments prescribes the classification and measurement, impairment and hedge accounting of financial instruments. It was published 24 July 2014 and will become…
How are financial instruments amortized?
Amortized cost is the amount at which a financial instrument is measured upon initial recognition, equal to its transaction price minus the principal repayments, plus or minus the…
How are financial instruments accounted for?
The accounting standards of US GAAP and IFRS require (1) the classification of financial instruments; (2) their recognition and derecognition in financial statements; (3) the recog…
How are financial instruments accounted for at fair value?
Where a financial instrument is not measured at amortized cost, it is measured at fair value through net income (profit or loss). Fair value is the price at which an asset or liab…
How are financial assets derecognized under US GAAP?
Derecognition is the removal of all or a part of an asset or liability from an entity’s balance sheet. An entity derecognizes a financial asset when: Its contractual rights to the…
How are corporate actions accounted for?
A rights offering is the distribution of subscription rights (a negotiable certificate) to existing shareholders in proportion to their ownership interest, which allows the shareho…
How are commercial real estate leases structured?
The three most common ways commercial property leases are structured are: Triple-net lease – A commercial real estate lease in which the lessee pays the base rent, utilities, clean…
How are assets depreciated?
For any amortizable assets, its cost is allocated on a systematic basis over the asset’s useful life. Depending on the depreciation (or amortization) method, the amount recognized…