882 SECTION 3 Financial Instruments and Liabilities Illustration 15–16 Lease Terms and Concepts: A Comprehensive Summary Lease Situation for Calculations ($ in 000s) Lease term (years) 4 Lessor’s cost $300 Asset’s useful life (years) 5 Residual value (Total: $8 1 6 1 5 5 $19): Lessor’s implicit rate (known by lessee) 12% Guaranteed by lessee $8 Lessee’s incremental borrowing rate 13% Guaranteed by third partya $6 Rental payments (including executory Unguaranteed $5 costs) at the beginning of each year $102 Executory costs paid annually by lessor $2 Bargain purchase option none Amount Description Calculation Lessee’s: Minimum lease payments To tal of periodic rental paymentsb plus residual value guaranteed by lessee or plus BPO priced ($100 3 4) 1 $8 5 $408 Leased asset Pr esent value of minimum lease payments (using lower of lessor’s rate and lessee’s incremental borrowing rate); cannot exceed fair value ($100 3 3.40183e) 1 ($8 3 .63552f) 5 $345 Lease liability at inception Same as leased asset ($100 3 3.40183e) 1 ($8 3 .63552f) 5 $345 Lessor’s: Minimum lease payments To tal of periodic rental paymentsb plus guaranteedc residual value or plus BPO priced ($100 3 4) 1 ($8 1 6) 5 $414 Lease receivable Present value of periodic rental paymentsb plus any residual value that reverts to the lessor (guaranteed or not) or plus any BPO priced (discounted at the lessor’s rate) plus any initial direct costs in a direct financing lease ($100 3 3.40183e) 1 ($19 3 .63552f) 5 $352 If sales-type lease: Sales revenue Pr esent value of lessor’s minimum lease payments ($100 3 3.40183e) 1 ($19 2 5 3 .63552f) 5 $349 Cost of goods sold Le ssor’s cost 2 present value of unguaranteed residual value $300 2 ($5 3 .63552f) 5 $297 Dealer’s profit Sales revenue 2 cost of goods sold $349 2 297 5 $52 aBeyond any amount guaranteed by the lessee ($8 1 6 minus any amount paid by the lessee). bAny portion of rental payments that represents maintenance, insurance, taxes, or other executory costs is not considered part of minimum lease payments. In this case, rentals are reduced as follows: $102 2 2 5 $100. cBy lessee and/or by third party. dIn this context, a residual value and a BPO price are mutually exclusive: if a BPO exists, any residual value is expected to remain with the lessee and is not considered an additional payment. ePresent value of annuity due of $1: n 5 4, i 5 12%. fPresent value of $1: n 5 4, i 5 12%. payments (plus any unguaranteed residual value). Some representative disclosure examples are shown in Illustrations 15–17 (lessor) and 15–18 (lessee). IBM is a manufacturer that relies heavily on leasing as a means of selling its products. Its disclosure of sales-type leases is shown in Illustration 15–17 .
Spiceland_Inter_Accounting8e_Ch15
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