21-140 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)

GAAP CONCEPTS
CONCEPT S AND APPLICA
APPLICATION
TION

GAAP21.1

The accounting for leases is found in Accounting Standards Codification section

842, which was updated in February 2016.
LO: 7, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Global, Communication, AICPA BB: Global, AICPA FC: Reporting, AICPA PC:
Communication

GAAP21.2

The following are similarities and differences betwee

between
n lease accounting under
IFRS and
an d U.S
U.S.. GAAP.
GAAP.

Similarities
•Both GAAP and IFRS share the same objective of recording leases by
lessees and lessors according to their economic substance—that is,
according to the definitions of assets and liabilities.
•Much of the terminology for lease accounting in IFRS and GAAP is the same.
•Both GAAP and IFRS require lessees to recognize a right-of-use asse assett and
related lease liability for leases with terms longer than one year.
•Under both IFRS and GAAP, lessors use the same general lease classification
criteria to determine if there is transfer of control of the underlying asset and
if lessors classify leases as sales-type or operating.
•GAAP and IFRS use the same lessor accounting model for leases classified
classified
as sales-type or operating.
•GAAP and IFRS have similar qualitative and quantitative disclosure
requirements for lessees and lessors.

Differences
• There is no classification
classification test for lessees under IFRS 16. Thus, lessees
account for all leases using the finance lease method; that is, leases
classified as operating leases under GAAP will be accounted for differently
compared to IFRS.
• IFRS allows alternative measurement bases for the right-of-use asset (e.g.,
the revaluation model, in accordance with IAS 16, Property, Plant and
 Equipment).

Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 21-141

GAAP CONCEPTS AND APPLICA

APPLICATION
TION (Continued)

• In addition to the short term lease exception, IFRS has an additional lessee
recognition and measurement exemption for leases of assets of low value
(e.g., personal computers, small office furniture).
• IFRS includes less explicit guidance on collectibility
collectibility of the lease payments by
lessors and amounts necessary to satisfy a residual value guarantee.
• IFRS does not distinguish between sales-type
sales-type and direct financing leases for
lessors. Therefore, IFRS 16 permits recognition of selling profit on direct
financing leases at lease commencement.

LO: 7, Bloom: K, Difficulty: Simple, Time: 10-15, AACSB: Global, Communication, AICPA BB: Global, AICPA FC: Reporting, AICPA PC:
Communication

GAAP21.3

Right-
Right-of-
of-Us
Use
e Asset
Asset (2
(2.83
.83339
339** X $2 $23,0
3,000 1/1/19
00)...
).......
........
........
........
........
.... 65,
65,16
168
8
Lease Liability......................................................... 65,168

*Present value of an annuity-due of 1 for 3 periods at 6%.

Lease
Lease Li
Liabi
abili
lity.
ty....
......
......
......
......
......
......
......
......
......
......
......
......
......
......
......
......
......
......
......
......
.....
.. 23,
23,00
000
0
Cash.......................................................................... 23,000

Schedule A
LEBRON JAMES CORPORATION
LeaseAnnuity-Due
Amortization Schedule
Basis

Reduction
Annual Interest (6%) on of Lease
Date Payment Liability Liability Lease Li
Liability
1/1/19 $65,168
1/1/19 $23,000 $ 0 $23,000 42,168
1/1/20 23,000 2,530 20,470 21,698
1/1/21 23,000 1,302 21,698 0
21-142 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)

GAAP CONCEPTS AND APPLICA

APPLICATION
TION (Continued)

Schedule B
Lease Expense Schedule
(C)
(A) (B) Amortization
Lease Expense Interest (6%) on of ROU Asset Carrying Value
Date (Straight-Line) Lease Liability (A-B) of ROU Asset
1/1/19 $65,168
12/31/19 $23,000 $2,530 $20,470 44,698
12/31/20 23,000 1,302 21,698 23,000
12/31/21 23,000 0 23,000 0

12/31/19
Leas
Lease
e Ex
Expe
pens
nse.
e...
....
....
....
....
....
....
....
....
....
....
....
....
....
....
.....
.....
.....
.....
.....
.....
.....
.....
.....
.....
.....
......
.....
.. 23
23,0
,000
00
Lease Liability (Schedule A)............................ 2,530*
Right-of-Use Asset (Schedule B).................... 20,470

*The accrual of the lease liability is a result of the accrual of interest related to the
lease liability, as shown in schedule A. Note that this is expensed along with the
amortization of the right-of-use asset at the end of 2019.

LO: 7, Bloom: AP, Difficulty: Simple, Time: 25-35, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None