- This topic has 9 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Hi Mike,
Th definition of minimum lease payments excludes contingent rent, cost of services and rent. Does this mean that we are talking here about just the capital element of the obligation as we are not considering the cost of services? And what do you mean by contingent rent?
Hi,
The substantial risk is where the Present value of the minimum lease payment > 90% of the Fair value of the asset. Here we are talking about the actual interest rate and not the implied interest rate, innit?
‘Does this mean that we are talking here about just the capital element of the obligation as we are not considering the cost of services’
No. Why are we not including the present value of the full value of the instalments that includes interest – I don’t see interest in that list of yours
Contingent rent is rent that is payable if certain conditions prevail but, because it’s contingent it’s not certain enough to be included
‘The substantial risk is where the Present value of the minimum lease payment > 90% of the Fair value of the asset. Here we are talking about the actual interest rate and not the implied interest rate, innit?’
What? What on Earth are you talking about, innit?
How can we be talking about any interest rate? Interest rate isn’t mentioned in your sentence! Innit!
I am having difficulty in understanding the link between below sentences:
1- Substantial interest means, PV of minimum lease value > 90% of fair value of the asset. (We use the implied rate as discount rate to get the PV of the minimum lease value right?)
2- Implied rate is one which discounts the min lease payments to be equal to the fair value of the asset.
If you the implied rate as discount rate, then automatically the PV of minimum lease value will always be equal to the fair value of asset, isn’t it?
(From your previous post)
‘The substantial risk is where the Pr……’
‘1- Substantial interest means, PV of m……’
‘2- Implied rate is one which discou……’
Are you confusing ‘interest’ with ‘rate’ with ‘risk’
The implicit (note the word – implicit) rate of interest is that rate that, when applied to the minimum lease payments, brings the present value to an amount equal to the fair value of the asset
Well after going through the chapter all over again I have got a clear understanding.
However, in example 2 of Giedrius & Geidruola, the question says assuming “rate of interest” is 10%. Isn’t it suppose to say “an implied rate of interest” rather than “rate of interest?” Because the rate of interest just by itself could possibly mean a standard strain line interest. isn’t it?Page 92 of notes (operating lease) reads on top as “IFRIC 4 – another recent look at operating leases”. How is IFRIC different from IFRS?
Also, are we suppose to know the numbers for each IFRS we study in the portion, from examination perspective?
How is IFRIC different from IFRS? – IFRIC is the Interpretations Committee that interpret the contentious, unclear points within an IFRS
NO, YOU ARE NOT MEANT TO KNOW THE NUMBERS (NOR THE TITLES) OF THE IASs NOR IFRSs
(I cannot believe that I am STILL being asked this question!)
The interest rate given in Giedrius and Giedruola is not an implicit rate of interest – it’s actually specified that the rate of interest is 10% so there is no need to imply anything at all
Thanks Mike. That was a long discussion, but certainly a fruitful one to enhance my understanding of the topic 🙂
- You must be logged in to reply to this topic.