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Topics in Long-Term Liabilities and Equity

Q: Lessee, Under IFRS and GAAP: For short term (12 months) and low value (<5000) leases, what will happen to income and balance sheet?

No balance sheet entries are required. Lease (rent) expense is recorded on the income statement, typically on a straight-line basis over the lease term.

14 important questions on Topics in Long-Term Liabilities and Equity

Under IFRS, for both finance and operating leases, except for short-term leases, a lessee reports a ....... and a ....... on its balance sheet both equal to the present value of the promised lease payments.

right-of-use (ROU) asset, lease liability

What will happen with principal repayment and interest portion under IFRS, what financial statement?

The interest portion of each lease payment is reported as an interest expense, while the principal repayment portion of each payment reduces the lease liability. (split between depreciation and interest)

When is the plan overfunded = net pension asset = funded status

fair value of the plan’s assets is greater than the estimated pension obligation

When is the plan underfunded = net pension liability = funded status

If the fair value of the plan’s assets is less than the estimated pension obligation

How does a change in a net pension asset or liability reflected in a firm’s two statements:

income statement, and as changes to accumulated other comprehensive income (OCI) each period.

Accounting for Defined Benefit Plans Under IFRS
The change in funded status comprises three elements:

1. Service cost (employee serves a year)
2. Net interest expense/income
3. Remeasurements (expected return can change due to several factors)

Accounting for Defined Benefit Plans Under U.S. GAAP
The change in a net pension asset or liability has ive components under U.S. GAAP. The first three are recognized in the income statement each period, while the last two go to other comprehensive income.

1. Service costs for the current period.
2. Interest expense or income.
3. The expected return on plan assets.
4. Past service costs.
5. Actuarial gains and losses.

Share-based compensation (stock grant and stock options) is designed to align the interest ........ And reduce

managers and stockholders and reduce agency costs

Is right that share based comepensation can make people both risk adverse and risk seeking?

Yes

Fair value of stock options when it has a vesting period with regards to the balance sheet and income statement

In short:

During vesting → Expense is recognized gradually.
At exercise → Cash and equity increase.
If never exercised → No adjustment needed (the APIC just stays). If the options expire and are not exercised, no adjustments need to be made.

Lessee, Under IFRS and GAAP: For short term (12 months) and low value (<5000) leases, what will happen to income and balance sheet?

No balance sheet entries are required. Lease (rent) expense is recorded on the income statement, typically on a straight-line basis over the lease term.

Lessor: Under both IFRS and U.S. GAAP, with a finance lease, the lessor removes the leased asset from its ..... And adds ......

balance sheet and adds a lease receivable asset

Explain what happens when a lessor sells the lease with his statements, both finance and in an operational lease manner

Lessor accounting: Finance vs. Operating Lease

Finance lease:
The lessor removes the leased asset from its balance sheet and recognizes a lease receivable (equal to the present value of lease payments).
The lessor reports:
- Interest income (on the receivable)
- Reduction of the lease receivable as payments are received
Operating lease:
The lessor keeps the leased asset on its balance sheet, continues to depreciate it, and reports:
- Lease payments as rental income
- Depreciation and other operating costs as expenses

For a lessor, finance leases can be sales-type leases or direct financing leases, explain both

- For a dealer or manufacturer of the leased equipment, the sales-type treatment is used. A profit or loss is recorded on the leased asset, as if it was inventory sold at initiation of the lease.
- For a direct financing lease, any gain or loss on derecognition is deferred and recognized in the income statement over the life of the lease as interest.

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Topics in Long-Term Liabilities and Equity

14 important questions on Topics in Long-Term Liabilities and Equity

Under IFRS, for both finance and operating leases, except for short-term leases, a lessee reports a ....... and a ....... on its balance sheet both equal to the present value of the promised lease payments.

What will happen with principal repayment and interest portion under IFRS, what financial statement?

When is the plan overfunded = net pension asset = funded status

When is the plan underfunded = net pension liability = funded status

How does a change in a net pension asset or liability reflected in a firm’s two statements:

Accounting for Defined Benefit Plans Under IFRSThe change in funded status comprises three elements:

Accounting for Defined Benefit Plans Under U.S. GAAPThe change in a net pension asset or liability has ive components under U.S. GAAP. The first three are recognized in the income statement each period, while the last two go to other comprehensive income.

Share-based compensation (stock grant and stock options) is designed to align the interest ........ And reduce

Is right that share based comepensation can make people both risk adverse and risk seeking?

Fair value of stock options when it has a vesting period with regards to the balance sheet and income statement

Lessee, Under IFRS and GAAP: For short term (12 months) and low value (<5000) leases, what will happen to income and balance sheet?

Lessor: Under both IFRS and U.S. GAAP, with a finance lease, the lessor removes the leased asset from its ..... And adds ......

Explain what happens when a lessor sells the lease with his statements, both finance and in an operational lease manner

For a lessor, finance leases can be sales-type leases or direct financing leases, explain both

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Accounting for Defined Benefit Plans Under IFRS
The change in funded status comprises three elements:

Accounting for Defined Benefit Plans Under U.S. GAAP
The change in a net pension asset or liability has ive components under U.S. GAAP. The first three are recognized in the income statement each period, while the last two go to other comprehensive income.