916 SECTION 3 Financial Instruments and Liabilities The following Trueblood case is recommended for use with this chapter. The case provides an excellent opportunity for class discussion, group projects, and writing assignments. The case, along with Professor’s Discussion Material, can be obtained by searching for “Trueblood Cases” on the Deloitte Foundation website: www.deloitte.com. Case 11–6: Lessee, Ltd. This case gives students the opportunity to extend their knowledge beyond chapter coverage by determining the appropriate classification and accounting for a lease arrangement under U.S. GAAP and IFRS. Security Devices Inc. (SDI) needs additional office space to accommodate expansion. SDI wants to avoid additional debt in its balance sheet. Required: 1. What lease classification would management prefer? Explain. 2. If SDI follows U.S. GAAP, how might SDI structure the lease agreement to avoid the additional debt? Explain. 3. Would avoiding the additional debt be more or less difficult under IFRS? Explain. Trueblood Case 15–8 Lease classification issues; U.S. GAAP and IFRS ● LO15–3 IFRS IFRS Case 15–9 Lease classification; U.S. GAAP ● LO15–1 LO15–2 LO15–3 LO15–11 IFRS Air France–KLM Case Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2013, are provided with all new textbooks. This material also is available at www.airfranceklm-finance.com. Required: 1. In Note 4: Summary of accounting policies, part 4.13.4: Leases, AF states that “leases are classified as finance leases when the lease arrangement transfers substantially all the risks and rewards of ownership to the lessee.” Is this the policy companies using U.S. GAAP follow in accounting for capital leases? Explain. 2. Look at AF’s Note 32.4: Financial debt: Capital lease commitments and Note 35: Lease commitments. Does AF obtain use of its aircraft more using operating leases or finance leases? Do lessees report operating and finance lease commitments the same way? Explain. ● LO15–11 IFRS CPA Simulation 15–1 Test your knowledge of the concepts discussed in this chapter, practice critical professional skills necessary for career success, and prepare for the computer-based CPA exam by accessing our CPA simulations in the Connect library. The GA Company simulation tests your knowledge of (a) the way we account for and report leases from the perspective of both the lessor and lessee, (b) how lease accounting is influenced by bargain purchase options and guaranteed residual value, and (c) accounting for sale-leaseback arrangements. GA Company Leases
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