Philippine Accounting Standards 17: Leases

Philippine Accounting Standards 17: Leases

1. an agreement whereby a lessor conveys to the lessee usage of a property in return for a payment or series of payments

   • Finance Lease
     • transfer of rewards and risks of the leased asset
     • INITIAL RECOGNITION
       • LESSEE: Fair Value of leased property or the Present Value of periodic payments, WHICHEVER IS LOWER
       • LESSOR: Recognize receivable equal to net investment in the lease
     • SUBSEQUENT MEASUREMENT
       • LESSEE: Shall be apportioned between the finance charge and the lease liability to produce a constant periodic rate of interest
         • LESSOR: Finance income based on pattern of constant rate of return
     • DEPRECIATION
       • In accordance with depreciation for PPE and/or intangible assets
       • If no certainty that the ownership will not transfer to lessee: shorter between useful life and lease term
   • Operating Lease
     • no transfer or rewards and risks of the leased assets
     • INITIAL RECOGNITION
       • LESSEE: Lease expense on a straight line basis over the lease term unless another systematic pattern is used
       • LESSOR: Recognized as income over the lease term on a straight-line basis unless another systematic pattern is used
     • SUBSEQUENT MEASUREMENT
   • Sale and Leaseback Transaction
     • Finance Lease
       • excess of sale proceeds over carrying amount shall be deferred and amortized by seller-lessee
     • Operating Lease
       • if established at fair value: profit or loss recognized immediately
       • if established below fair value: profit or loss recognized immediately, except if it is compensated for by future lease payments, it shall be deferred and amortized
       • if established above fair value: deferred and amortized over expected usage of asset
     • involves selling the asset and selling it back