Treatment of lease premium in operating leases

This topic has 4 replies, 2 voices, and was last updated 11 years ago by MikeLittle.

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June 15, 2015 at 3:25 pm #257017
olanrewaju
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Dear Mr Mike,

The June 2015 exam tested lease premium on operating leases.

The question goes thus “The operating lease payments represent an
annual payment (in advance) of $1 million and a lease premium of $1 million. The lease is for 4 years”

How do we treat this? Do we take the whole $2M to Profit or loss?

Or do we time-apportion the lease premium and take $250,000 to profit or loss and then treat $750,000 as prepayments in the SOFP?

A quick response will be appreciated. Thanks
June 15, 2015 at 3:49 pm #257022
MikeLittle
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The second option

Is that prompt enough?
June 15, 2015 at 4:04 pm #257027
olanrewaju
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Thank you.

It was way quicker than I expected
June 15, 2015 at 4:05 pm #257028
olanrewaju
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Its just surprising how BPP completely left the concept out of their books
June 16, 2015 at 1:05 am #257192
MikeLittle
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Well, ok, but in fairness to them, it IS difficult to remember to put everything in
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