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hi,
i’d like to clarify :
IAS 17 requires the liability to be initially measured at the lower of the fair value
of the leased item or the present value of the minimum lease payments.when we should discount our min lease payments? only when we have gross amount?
The examiner will tell you both the fair value of the asset (the cash price) and the present value of the minimum lease payments. It is highly improbable that you will be given discount factors or the discount rate – most unlikely therefore that you will be asked to calculate the present value of the mlp
I’m not sure what your question is “when we should discount our min lease payments? only when we have gross amount?”
You may need both but, again, that’s highly unlikely. You’ll be given the cash price and you’ll be given the discount rate (company’s cost of capital)
OK?
i am confused by the fact:
1) in one example (probably not good):
we have FV of an asset, % rate, and annual payment
then they discount all annual payments and compare with FV2) in your lecture :
you don’t discount
we calculate min lease payments (number*lease payments+deposit)
and we compare this sum with FVi hope i make myself clear
The only reason for that comparison was, I believe, to calculate the total lease interest
It’s unlikely that your examiner will (I said it earlier) ask you to calculate the pv of the mlp.
The only sort of time that you will need to do that is where the client company has treated a lease as a finance lease and it should have been treated as operating and, even then, it will be SO obvious that there really is no need to do the calculation anyway! The last time I remember him doing it the lease was for land and buildings (he showed the two separate values) and the buildings element was only about 40% of the fair value so it clearly was an operating lease
OK?
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