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U.S. GAAP Accounting Standards
Codification Topic 840: Leases


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Codification Topic 840
Leases


Leases

SFAS 13, November 1976
"Accounting for Leases"

Lease classification criteria
(A) Ownership transfer
--> Ownership is transferred by the end of the lease term
(B) Bargain purchase option
-> Lessee has an option purchase at the price lower than the fair value
(C) Lease term: 75% rule
--> Lease term ≥ 75% of economic life of the leased property
(D) Minimum lease payment: 90% rule
--> Present value of minimum lease payments > 90% of fair value of the leased property

Additional criteria for lessor
(E) Collectibility of minimum lease payment
--> reasonably predictable
(F) No important uncertainties
--> about the additional costs to be incurred by lessor
--> when such costs are not reimbursable

Lease classification by lessee
1. A lease satisfies any of (A), (B), (C), (D)
--> capital lease by lessee

2. A lease satisfies none of (A), (B), (C), (D)
--> operating lease by lessee

Lease classification by lessor
1. A lease satisfies any of (A), (B), (C), (D) and both of (E), (F)
--> sales-type lease, direct financing lease, or leveraged lease by lessor

2. Other cases
--> operating lease by lessor

Sales-type lease
The lessor gets manufacturer's or dealer's profit or loss

Manufacturer's or dealer's profit or loss
--> when fair value ≠ carrying amount of the leased property
--> profit when fair value > carrying amount
--> loss when fair value < carrying amount

Direct financing lease
1. The lessor does not get manufacturer's or dealer's profit
2. A lease does not meet the leveraged lease criteria

Leveraged lease
1. A lease that meets all conditions of direct financing lease
--> and all of (G), (H), (I)

2. Leveraged lease combines two transactions into one
transaction 1: lessor borrows money and purchases the leased property
transaction 2: lessor leases the property to lessee

Leveraged lease criteria
(G) A lease involves at least three parties
--> a lessee, a lessor (equity participant), a long-term creditor
(H) Financing by long-term creditor
--> provides substantial leverage to the lessor
--> is nonrecourse as to the lessor's general credit
(I) Lessor's net investment
--> declines during early periods
--> rises during later periods

Accounting by lessee
1. Operating lease
--> Rent is charged to expense by the lessee

2. Capital lease
--> Recognized as an asset and a liability by the lessee

Accounting by lessor
1. Operating lease
--> Rent income is recognized by the lessor
--> The leased property continues to be reported as an asset by the lessor
--> The leased property is depreciated by the lessor

2. Sales-type lease
--> The lessor records the lease same as a sale of the property
--> Sales, cost of goods sold, lease receivable, unearned income are recognized by the lessor

3. Direct financing lease
--> Asses is derecognized from the lessor's records
--> Lease receivable, unearned income are recognized by the lessor

4. Leveraged lease
--> The lessor recognizes the following:
(a) rentals receivable
(b) unearned and deferred income
(c) residual value of leased property
(d) investment tax credit, if applicable
 
 
Statements of Financial Accounting Standards (SFAS) on Lease Topics


1. SFAS 13, November 1976, Accounting for Leases
2. SFAS 17, November 1977, Accounting for Leases: Initial Direct Costs�an amendment of FASB Statement No. 13 
--> SFAS 17: superseded by SFAS No. 91, December 1986
3. SFAS 22, June 1978, Changes in the Provisions of Lease Agreements Resulting from Refundings of Tax-Exempt Debt�an amendment of FASB Statement No. 13
4. SFAS 23, August 1978, Inception of the Lease�an amendment of FASB Statement No. 13
5. SFAS 26, April 1979, Profit Recognition on Sales-Type Leases of Real Estate�an amendment of FASB Statement No. 13 
--> SFAS 26: superseded by SFAS No. 98, May 1988
6. SFAS 27, May 1979, Classification of Renewals or Extensions of Existing Sales-Type or Direct Financing Leases�an amendment of FASB Statement No. 13
7. SFAS 28, May 1979, Accounting for Sales with Leasebacks�an amendment of FASB Statement No. 13
8. SFAS 29, June 1979, Determining Contingent Rentals�an amendment of FASB Statement No. 13
9. SFAS 91, December 1986, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases�an amendment of FASB Statements No. 13, 60, and 65 and a rescission of FASB Statement No. 17
10. SFAS 98, May 1988, Accounting for Leases: Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition of the Lease Term, and Initial Direct Costs of Direct Financing Leases�an amendment of FASB Statements No. 13, 66, and 91 and a rescission of FASB Statement No. 26 and Technical Bulletin No. 79-11
11. SFAS 145, April 2002, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections



International Financial Reporting Standards (IFRS)

   IAS 17: Leases


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   Codification Topic 840
   Leases
 
Subtopics of Codification Topic 840
 
   840-10 Overall
   840-20 Operating leases
   840-30 Capital leases
   840-40 Sale-leaseback transactions
 
Accounting Terms of Codification Topic 840-10
 
   Bargain purchase option
   Bargain renewal option
   Capital lease
   Contingent rentals
   Direct financing lease
   Estimated economic life
   Estimated residual value
   Fair value of leased property
   Fiscal funding clause
   Heat supply (or burn-up) contracts
   Incremental borrowing rate
   Indirectly related to the leased property
   Interest rate implicit in the lease
   Lease
   Lease inception
   Lease term
   Leveraged lease
   Minimum lease payments
   Noncancelable lease term
   Operating lease
   Penalty
   Probable
   Reasonably possible
   Remote
   Sales-type lease
   Significant influence
   Sublease
   Substantially all
 
Accounting Terms of Codification Topic 840-20
 
   Construction period lease payments
   Original lessee
 
Accounting Terms of Codification Topic 840-30
 
   Advance refunding
   Delayed equity investment
   Interest method
   Nonrecourse financing
 
Accounting Terms of Codification Topic 840-40
 
   Active use of the property
   Minor
   Normal leaseback
   Profit or loss on sale
   Property improvements or integral equipment
   Sale-leaseback accounting
   Sale recognition
   Wrap lease transaction



   Other Topics at the Codification 800 
Accounting Standards Codification, ASC, Overview
 
ASC Codification Topic 805: Business Combinations
ASC Codification Topic 808: Collaborative Arrangements
 
ASC Codification Topic 810: Consolidation
ASC Codification Topic 815: Derivatives and Hedging
 
ASC Codification Topic 820: Fair Value Measurements and Disclosures
ASC Codification Topic 825: Financial Instruments
 
ASC Codification Topic 830: Foreign Currency Matters
ASC Codification Topic 835: Interest
 
ASC Codification Topic 840: Leases
ASC Codification Topic 845: Nonmonetary Transactions
 
ASC Codification Topic 850: Related Party Disclosures
ASC Codification Topic 852: Reorganizations
ASC Codification Topic 855: Subsequent Events
 
ASC Codification Topic 860: Transfers and Servicing


   U.S. GAAP Codification of Accounting Standards
Accounting Standards Codification, ASC, Overview
ASC Codification 200: Presentation
ASC Codification 300: Assets
ASC Codification 400: Liabilities
ASC Codification 500: Equity
ASC Codification 600: Revenue
ASC Codification 700: Expenses
ASC Codification 800: Broad Transactions
ASC Codification 900: Industry

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