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+--- Thread: IAS 17 ----- some queries (/showthread.php?tid=3405)
IAS 17 ----- some queries - insaan - 06-17-2006
IAS 17
Some queries???
Non cancellable lease
Non cancellable lease (definition part (D)) i.e. upon payment of such an additional amount (at inception of lease) that continuation of lease is reasonably certainableâ¦What major difference in lease there would be, regarding practical application ,if it is cancellable or non cancellableâ¦
Most of operating leases are cancellable...If this is the case we donât need to give any disclosure (Para 35) Am I right?
Can a finance lease be cancellableâ¦if yes, how and what would be its implications?
MLP
MLP definition last Para , i.e. purchase option at lower than F.V at option exercisability date,MLP also comprises then payment required to exercise that option â¦Why lower than F.V,if payment = F.V ,it would be an operating lease(Para 13),then what , it is even then the part of MLPâ¦
Fair Value
Fair Value amount 4 which asset could be exchanged or liability settled b/w knowledgeable, willing parties in an armâs length transaction. What exactly is meant by knowledgeable, willing parties B/C an armâs length transaction can even take place at a nominal amount
Interest rate implicit in lease
Interest rate implicit in lease = rate at which, net investment in finance lease = Fair value +initial direct cost, M I right?
Contingent rent
What is contingent rent.Plz explainâ¦.they (contingent rent, service costs, taxes paid to lessor etc) are expensed out by lessee when incurred and recognized as income by lessor respectively. Do correct me plz
Lease classification
Is this correct that a same lease may be classified differently by lessee and lessor (this is what I concluded from Para 9)
Initial direct cost
PLz summarize treatment of initial direct cost w.r.t lessee, lessor (including manufacture dealer lessor), in case of finance and operating leaseâ¦I m a bit confused...Thx
- insaan - 06-19-2006
it look like people dont know answers OR
my questions are not very much lear OR
they dont wanna answer
whatever the case may be , never mind
i would try to get answers and would post , so that u people also come to know
- Ali Akbar - 06-19-2006
Wait sir, let me give u detailed answer of it once I get free.
ICAPians, the unparalleled..
- insaan - 06-19-2006
oh sorry
i thought u r not here
- insaan - 06-23-2006
hi ali u havent still answered my queries
i m waiting for reply
i hav to windup this topic
- Ali Akbar - 06-23-2006
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by insaan</i>
<br />hi ali u havent still answered my queries
i m waiting for reply
i hav to windup this topic
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Hello
Sorry I wont be able to reply any more on this forum regarding IFRSs, as I dont know anything!
I will be more than happy if we discuss these things off the board. We can have study chat through emails or chat as I am not worthy of this highly equiped platform.
Waiting for you.
- insaan - 06-23-2006
Oh i just popped in...
no no not at all
this isn't the case
u r contributing the most
and in these circumstances i would second ur opinion of quitting this forum
people all around are just humuliating u ......
BUt just be calm and cool
there are always rotten eggs in a basket of good ones ,so y should care for them
my yahoo id is junaid_jain@yahoo.com
CU then ....
and waiting for u
Ok
take care
have a good night
ALLAH HAFIZ
- Abdur.Rehman - 07-03-2006
Here r the replies of ur queries
plz ask if any confusion still remains(i hope it will)
1)cancellable lease
a cancellable lease is like a standing offer. U can cancel it at any time. And regarding point D, it says that whenever u have to pay some amount to cancel the lease and u have an intention to continue it, it will be classified as a non-cancellable lease. The basic motive of this definition is to ensure that whenever there is a payment or hinderance to cancellation of lease, it will be a non-cancelable lease.
If we apply a restriction like clause D of para 4 on an operating lease, it becomes a non-cancellable lease. A finance lease cannot be a cancellable lease. u shud read para 11(a). tell me if u need explanation.
2) Here he is talking about the payment required to exercise the option. U may compare It with the example of share option scheme, where v pay something to exercise the option. Here he is including such a payment in the MLP. The payment that is less than FV will be included in any case.
3) Whenever an arms length transaction is carried out at a nominal value, it will surely cast suspicion regarding the knowledge and willingness of the party giving such benefit. Knowledgeable means that there is no involvement of misrepresentation, mistake or fraud in the transaction and willing means there is no undue influence or coercion involved.
4) Right
5) u r right in treatment. Take an example. If u say that ur implicit rate of interest would be higher of 10% or KIBOR+3%. Initially u take 10%. Later on KIBOR+3% increases 10%. Then ur rentals will be increased and the increase would be a contingent rent.
6) u r right. As u go through the definition of MLP u will find that MLP can be different for lessor and lessee. So, if for lessor MLP discounted=FV and for lessee not so, then the lease would be finance lease for lessor and operating for lessee.
7) Both the lessee and the lessor (other than manufacturer or dealer) shall include those costs in the cost of asset. Such costs incurred by manufacturer or dealer lessors are excluded from the definition of initial direct costs.
- insaan - 07-03-2006
thx dear
i got it
just hav some queries on initial direct costs
lesee
any initial direct cost r included in cost of asset recognized and thereby asset is depreciated,at shorter of lease term or useful life
not included in MLP B/C this initial direct cost doesn't in any ways represent a payment we have to make to lessor,however,initial direct cost if of such nature that they represent a liability to lessor,then included in MLP
not deducted from cost of asset 4 computaion of lease rentals,where it isn't part of MLP,howver if it is part of MLP then deducted from cost of asset in computation of lease rentals
lessor
any initial direct cost incurred by lessor included in cost of asset..
in case of operating lease ----- lessor simply depreciates it over useful life
now here arises a question....lets take an example
cost of asset = 100 ,useful life =10yrs
initial direct cost= 10,lease term = 5yrs
now lessor will depreciate cost of asset over 10 yrs & initial direct cost over 5 yrs ,as this initial direct cost is only 4 that specific lease ,so its economic benefit shall also be recognised over lease term...is thiS really the CAse?
in case of finance lease
in case of finace lease asset wud be depreciated by lesee at lower of F.v or P.V of MLP
now if cost of asset to lessor = 100
and asset is recorded at Rs 80 by lessee ,F.V being lower
then wat about depreciatin of Rs 20?
just respond to part where i stand wrong or otherwise there is a question,any unanswered portion wud be assumed by me 2 be correct
1 more iSsue
rentals are computed by lessee or by lessor(it shud be lessor i think) & at which amount? the amount at which asset is recognized by him?i.e lower of F.V or P.V of MLP or at cost... ,less P.V of any R.V
and is amount of rentals always same for both lessee & lessor?
rentals are just a systematic allocation of whatever lessee owes to lessor...isn't it?
and thx 1nce again
i do hav an idea that u people r busy always & nowdays specially itz being da yr end
- Abdur.Rehman - 07-10-2006
Lessee ok........
Lessor
Operating lease
Initial direct costs incurred by lessors in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as the lease income.
Finance lease
Lessors include in the initial measurement of finance lease receivables(MLP) the initial direct costs incurred in negotiating a lease. This treatment does not apply to manufacturer or dealer lessors. Manufacturer or dealer lessors recognise costs of this type as an expense when the selling profit is recognised.
one more point that if the fair value of asset is 80 and MLP is 100. i dont think it shud be classified as a finance lease. i think u shud review the question.
Lessor recognizes receivable = net investment in lease i.e.= PV(MLP+UGRV)
practically amount of rentals is same but theoratically it can be different.
u can say i.e. systematic allocation..
sory 4 a very late reply.. reason u know..
- Abdur.Rehman - 07-10-2006
and there is a recommendation 4 u..
plz divide ur question in numbers. they ll be easy to answer and understand for u & me both..
thanx