Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 25.2, Problem 1CC
Summary Introduction
To determine: The difference between the accounting treatment of operating and capital leases and aspect of this accounting treatment will change in 2019.
Introduction: Lease is a contract between the lessee and lessor for the uses of an asset. Lessee agrees to pay specific amount as per contract to the lessor for the uses for lessor asset.
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Students have asked these similar questions
How does IFRS 16 Leases will be affected by the changes in financial markets?
Prior to 2019, lessees did not include the right-of-use asset and the lease liability for operating leases on their balance sheets. Both FASB and IASB wrote new standards to require that lessees nearly always report an asset and liability on their balance sheets when they engage in a lease transaction. This accounting results in which of the following?
Group of answer choices
a more reliable estimation of the lease's value
a better determination on whether the lessor held the risks and rewards of the leased asset's ownership
a more faithful representation of the rights and obligations arising from leases
All of the above
Case 2: On January, 1 2021, Silver Company entered into a lease for floor space with the following
information:
Floor Space
Annual rental payable at the beginning of each year
Lease Term
Incremental Borrowing Rate
Implicit Interest Rate
500 square meters
300,000
7 years
8%
10%
On January 1, 2024, Silver Company and the lessor agreed to amend the original terms of the lease
with the following information:
Floor Space
Annual rental payable at the beginning of each year
Incremental Borrowing Rate
Implicit Interest Rate
When present value is needed, round off the present value factor to two decimal places.
200 square meters
120,000
10%
12%
Chapter 25 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 25.1 - In a perfect capital market, how is the amount of...Ch. 25.1 - Prob. 2CCCh. 25.2 - Prob. 1CCCh. 25.2 - Is it possible for a lease to be treated as an...Ch. 25.3 - Why is it inappropriate to compare leasing to...Ch. 25.3 - Prob. 2CCCh. 25.3 - Prob. 3CCCh. 25.4 - Prob. 1CCCh. 25.4 - Prob. 2CCCh. 25 - Suppose an H1200 supercomputer has a cost of...
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Similar questions
- What are the two types of losses that can become evidentin accounting for long-term contracts? What is the natureof each type of loss? How is each type accounted for?arrow_forwardWhat are the measurement issues in the IFRS16 Leases standards.? a)Which basis of measurement is allowed? b)why Why do you think that measurement basis is preferred(explain by referring to qualitative characteristics of financial information)arrow_forwardDoes it say on the IFRS that Leases (for Lessees) can be recorded at Fair Value on Commencement Date? I don't recall being taught this.arrow_forward
- What was the major change in accounting for leases introduced by new accounting standard AASB 16 IFRS 16? Discuss the accounting treatment for leases and who are impacted by these changes.arrow_forwardWhere can we obtain reliable guidelines on IFRS lease accounting?arrow_forwardWhat are asset retirement obligations? How should a company account for them?arrow_forward
- Where can we find authoritative guidance for accounting for leases under IFRS?arrow_forwardWhat are the criteria for classifying an item as a current liability? What are some examples of current liabilities? Why is it important to classify a portion of long-term debt on a yearly basis as a current liability? What is the implication of misclassifying a liability as current or long-term?arrow_forward1. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much unrealized gain (loss) is to be reflected in the statement of changes in equity and statement of comprehensive income at yearend 2020? 2. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: What is the carrying value of the investment on December 31, 2020? 3. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: Determine the gain or (loss) to be recorded upon the sale of the investment.arrow_forward
- Which of the following is most likely a lessee’s disclosure about operating leases?A . Lease liabilities.B . Future obligations by maturity.C . Net carrying amounts of leased assets.arrow_forwardPart 1: New Lease Accounting – IFRS 16 Leases Effect Analysis. What are the top three industries most affected by IFRS 16 as measured by the present value of future payments for off-balance-sheet leases to total assets? Which leased assets propel them to the top three? Also, discuss the extent that smaller firms would be affected by IFRS 16. Which payments are to be included in the measurement of lease assets and lease liabilities? Also, discuss the pros and cons of excluding the following payments from the measurement. Variable lease payments linked to future use or sales Optional payments relating to lease-extension option when a lessee is not reasonably certain to exercise the option. Discuss the effects of the new accounting on the following items and ratios of lessees. Provide reason(s) behind all effects. EBITDA, operating profit, and profit before tax Operating cash flow, financing cash flow, and total cash flow Debt to equity, current ratio, and return on total assetsarrow_forwardWhat are the criteria for classifying a lease as operating or capital? Why is there a difference between the two? What are the implications of an operating lease versus a capital lease on an entity’s financial statements?arrow_forward
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