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Dear sir,
I have three questions on leases:
1. For operating lease, do both lessee and lessor need to book the depreciation?
2. Do we consider the classification of finance and operating lease in sale and leaseback ? I think if it is sale substantial risks and rewards are transferred and hence finance lease?
3. If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, then adjust to measure the sale proceeds at fair value:
(a) any below-market terms shall be accounted for as a prepayment of lease payments; and
(b) any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee.
I could not get as how to make this adjustment?1. No, only the lessor
2. The question of whether or not it’s a finance lease is dependent upon those criteria detailed in IFRS 16. If the (previous) owner, now the lessee, has right-of-use, then it’s a finance lease. If there is no right-of-use, then it’s an operating lease
3. Say we have an asset for sale and lease back with a fair value of $100,000 but the fair value of the consideration is only $95,000
Dr Cash $95,000
Cr Finance Lease Obligation $100,000So where’s the other $5,000 to balance the journal entry?
It’s treated as a deduction from the Finance Lease Obligation
To complete the entry:
Dr Cash $95,000
Cr Finance Lease Obligation $100,000
Dr Finance Lease Obligation $5,000OK?
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