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IAS 17 finance lease- Depreciation.

Forums › Ask CIMA Tutor Forums › Ask CIMA F2 Tutor Forums › IAS 17 finance lease- Depreciation.

  • This topic has 4 replies, 2 voices, and was last updated 6 years ago by chap.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • April 13, 2019 at 5:55 am #512165
    chap
    Participant
    • Topics: 11
    • Replies: 22
    • ☆

    Sir, if the question says, that the legal title of the asset will be transferred to the lessee at the end of the lease agreement, is it ok to use the useful economic life to depreciate the asset even if it’s higher than the lease period.

    Thanks.

    April 18, 2019 at 4:20 pm #513427
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    We go with the shorter of the lease term and economic life. If the lease term is longer then we are just using the asset without getting any economic benefit effectively as its economic life is complete.

    Thanks

    April 19, 2019 at 5:00 am #513458
    chap
    Participant
    • Topics: 11
    • Replies: 22
    • ☆

    That’s true sir. But recently I found a question which specifically says that the legal title of the asset is transferring to the lessee at the end of the lease period. In that question, the lease term is shorter than the economic life.
    It’s obvious that we should take the shorter of the lease term and economic life. But in the answer, the depreciation was calculated using economic life though it’s longer than the lease term. That’s why I was a bit confused.

    Thanks,
    Charuka.

    April 25, 2019 at 8:38 pm #514155
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi Charuka,

    If we take legal title at the end of the lease period then the lease term is longer than the initial lease period, it is effectively indefinite, and so the economic life is then shorter.

    Hope that clears it up.

    Thanks

    Chris

    April 26, 2019 at 3:59 am #514179
    chap
    Participant
    • Topics: 11
    • Replies: 22
    • ☆

    All right sir got it. Thank you very much.

    Thanks,
    Charuka.

  • Author
    Posts
Viewing 5 posts - 1 through 5 (of 5 total)
  • The topic ‘IAS 17 finance lease- Depreciation.’ is closed to new replies.

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