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US GAAP vs. IFRS: the basics, March 2010 - Leases - Ernst & Young - U
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Leases
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Similarities
The overall accounting for leases under US GAAP and IFRS (ASC 840 Acco n ing fo Lea e (formerly FAS 13) and IAS 17 Lea e , respectively) is similar, although US GAAP has more specific application guidance than IFRS. Both focus on classifying leases as either capital (IAS 17 uses the term finance) or operating, and both separately discuss lessee and lessor accounting.
1/14/12
US GAAP vs. IFRS: the basics, March 2010 - Leases - Ernst & Young - U
Significant differences
US GAAP Lease of land and building A lease for land and buildings that transfers ow nership to the lessee or contains a bargain purchase option w ould be classified as a capital lease by the lessee, regardless of the relative value of the land. If the fair value of the land at inception represents 25% or more of the total fair value of the lease, the lessee must consider the land and building components separately for purposes of evaluating other lease classification criteria. (Note: Only the building is subject to the 75% and 90% tests in this case.) If the seller does not relinquish more than a minor part of the right to use the asset, gain or loss is generally deferred and amortized over the lease term. If the seller relinquishes more than a minor part of the use of the asset, then part or all of a gain may be recognized depending on the amount relinquished. (Note: Does not apply if real estate is involved as the specialized rules are very restrictive w ith respect to the seller s continuing involvement and they may not allow for recognition of the sale.) IFRS The land and building elements of the lease are considered separately w hen evaluating all indicators unless the amount that w ould initially be recognized for the land element is immaterial, in w hich case they w ould be treated as a single unit for purposes of lease classification. There is no 25% test to determine w hether to consider the land and building separately w hen evaluating certain indicators.
Recognition of a gain or loss on a sale and leaseback w hen the leaseback is an operating leaseback
Gain or loss is recognized immediately, subject to adjustment if the sales price differs from fair value.
Recognition of gain or loss on a sale leaseback w hen the leaseback is a capital leaseback
Generally, same as above for Gain or loss deferred and operating leaseback w here the amortized over the lease term. seller does not relinquish more than a minor part of the right to use the asset.
Other differences include: 1. 2. 3. 4. 5. the treatment of a leveraged lease by a lessor under ASC 840 (IAS 17 does not have such classification) real estate sale-leasebacks real estate sales-type leases leases of land and the rate used to discount minimum lease payments to the present value for purposes of determining lease classification and subsequent recognition of a capital lease, including in the event of a renew al.
Con ergence
The Boards are jointly w orking on a long-term convergence project on lease accounting w ith an overall objective of creating a common standard on lease accounting to ensure that the assets and liabilities arising from lease contracts are recognized on the balance sheet. The Boards have published a discussion paper that sets out their preliminary view s on accounting for leases by lessees and includes a high-level discussion of lessor accounting issues. An exposure draft of a new standard that addresses accounting for leases from the perspective of the lessor and the lessee is expected to be issued in 2010.
1/14/12
US GAAP vs. IFRS: the basics, March 2010 - Leases - Ernst & Young - U
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