FAR M11考点归纳参考.doc

Study Notes- FAR M11 (Lease) A lease is a contract between a lessor (the owner of an asset) and a lessee (the person who is going to use the asset) that conveys the right to use specific property for a stated period of time in exchange for a stated payment. Accounting for the lease transaction is based on “substance over form”. The following are the types of the leases from accounting perspective Lessor Lessee Operating lease Non-operating lease -Sales type lease - Direct financing lease Operating lease Capital lease Operating lease If the lease is classified as an operating lease, the lessee is going to treat the lease payments as rent expense. and the lessor is going to treat it as rental income and there is no interest in an operating lease . For CPA exam purpose, the operating lease is relatively simple from accounting perspective. Most CPA exam questions concentrate on how to calculate the rent expense especially in some special situations. The general rule is that the amount of rent expense that should be recognized in each period of the lease is the same. This means that the rent expense amount will be the same for each month, quarter or year. Rent expense needs to be equal each month in order to match revenues and expenses properly. Accounting by lessee Free rent: lease rent expense is recognized evenly Lease bonus: is considered an asset and amortized straight line over the lease term Leasehold improvements is reported as part of the fixed assets and amortized over the shorter of lease term or useful life Refundable security deposit are receivable vs. nonrefundable deposit are prepaid assets to be amortized in the future Early termination costs must be recognized immediately at fair value by lessee upon termination of the lease agreement. (cease-use date) Accounting by lessor Initial direct costs (finder’s fees, appraisal fees, document processing fees, negotiation fees and any other direct costs incurred to set up the lease agreement) are capitaliz