Classification of a lease To get a classification of the type of lease you are facing, you must first review the information provided in the scenario and determine whether the risks and opportunities inherent in holding the asset are due to the lessee or lessor. If the risks and opportunities are due to the lessee, it is a lender, if the lessee does not take care of the risks and opportunities, then leasing is called operating leasing. A lease is considered a lease if it meets the following criteria set out in ASC840: according to the initial approach, a lessee increases the rental liability by counting the interest charges on the leasing liability and reducing it by the payments it has made over the periods. As a general rule, a lessee draws up a lease depreciation plan. Since the rent is made at the beginning of each month, the current value of the monthly rents is calculated accordingly. #1,033,238 i.e. 94% (1,033,238 / 1,100,000) of the current value of the asset, i.e. more than 90%. In the case of a sale and lease transaction leading to leasing, any excess of the proceeds shall be delimited in relation to the carrying amount and amortised over the term of the lease. [IAS 17.59] Suppose Company A entered into a capital lease agreement on January 1, 2018 to lease an aircraft with Company B. The agreement provides for the lease of the aircraft worth $US 1,100,000 for a period of 6 years.
The useful life of the aircraft is 7 years. The contract stipulates that the $20,000 lease should be carried out at the beginning of each month for a period of 6 years. At the end of the rental, there is no rescue value. The lessee chooses to purchase the asset at the end of the lease period at a value below fair value. The increase in the burden on the lessee does not stop there, since the accounting and maintenance of the assets and liabilities created by each lease are necessary in each period. The current accounting of leasing contracts will be essentially the same as the current accounting for capital leasing ratios; However, the recognition of leases will vary based on the assets and liabilities currently recognized. The sum of the rents of an operating lease is depreciated on a straight-line basis, with each payment invoiced at the cost of the lease and the corresponding credits (1) of the lease liability for accretal interest and (2) the right to use the difference. Assuming that the existing contract is not modified, this treatment would have the effect of amortizing the object of the right of use with the effective interest rate method that applies a constant interest rate to an unamortized commitment. Although not explicitly specified, the effect of multiplying the interest rate used in the calculation of the present value and amount of the rental liability and its deduction from the total cost of the lease is to apply a constant rate to the equivalent of the right of use; At the end of the rental period, the right of use would then be fully amortized.
A lessor must first determine whether a lessee is a lessor of operations or a financial leaseback. Only fund leases should be accounted for. Since the lease payment must be made at the beginning of each month, the January 2018 interest is not paid, as the asset has not yet been used by the tenant. The first installment rent or leasing will therefore start from 1 January 2018. Amount of capital for the calculation of interest = total value of assets minus leasing rent paid = 1033238 – 20000 = 1013238. . .