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Leases - Coggle Diagram

- - - - Tax deductions generally apply to lease payments, whereas the purchase price of an asset is not tax-deductible.
- - - - cleaning
      - consulting services
      - maintenance
- - - - Initial Measurement
        
        At the commencement date, a lessee shall measure the right-of-use asset at a cost which includes:
        
        Any lease payments made at or before the commencement date;
        
        Any initial direct cost
        
        The amount of the initial measurement of the lease liability
        
        An estimate of dismantling, removing or restoration costs
      - Subsequent Measurement
        
        The depreciation policy for depreciable leased assets shall be consistent with the standard on property, plant and equipment (IAS 16).
        
        If ownership is acquired at the end of the lease term, Depreciate the asset over the useful life.
        
        The right-of-use asset will subsequently be measured by using the Cost Model (It is therefore depreciated)
        
        If ownership is not acquired, depreciate the asset over the shorter of the lease term and its useful life.
    - - Initial Measurement
        
        The lease liability will be measured at: The present value of the lease payments not yet paid discounted at the interest rate implicit in the lease (or the lessee’s incremental borrowing rate)
        
        The lease payments will include residual value guarantees and purchase options (that will reasonably be exercised).
      - Subsequent Measurement
        
        The lease liability will subsequently be measured by Increasing the carrying amount to reflect the interest on the lease and
        
        Reducing the carrying amount to reflect the lease payments
- - - - Divide the annual installment between the capital and interest components according to the applicable amortization schedule and debit the finance charges account and credit the lease obligation account.
      - Debit the Bank Account and Credit the Lease Obligation Account when each installment is paid.
      - Debit the Right of Use asset account and the VAT-input account and Credit the Lease Obligation Account when the lease is initiated.
  - - - For assets, the carrying amount is the cost price less accumulated depreciation, while the Tax Base is the Amount Deductible in Future.
      - For liabilities, the carrying amount is the outstanding lease obligation, while the Tax Base is the Carrying Amount less The Amount Deductible in Future.
- - - - Value added tax (VAT) is levied on each individual lease payment, which includes VAT, while lease expenses on the statement of comprehensive income exclude VAT.
    - - Accounting treatment for an Even lease, where the Annual installment is consistent over the lease term, is to record the lease expense (P/L) at the net amount and the VAT-input account at the VAT amount, with bank as the offsetting account.
    - - For an uneven lease, where the annual installment varies over the lease term, VAT can only be claimed when the lessee becomes liable for the lease installment. VAT cannot be claimed when applying the matching concept.
        
        Accounting treatment for a prepaid uneven lease
        
        Involves recording the lease expense (P/L) at the net amount and a pre-paid lease (F/P) account at the VAT amount, with no VAT written back. In subsequent years, record the lease expense (P/L) and VAT-input account for the amount due and paid and reduce the pre-paid lease (F/P) account by the same amount.
        
        For a provision-made uneven lease
        
        Record the lease expense (P/L) and VAT-input account for the amount due and paid and record a provision for lease (F/P) account for the difference between the average installment amount and the actual amount paid. In subsequent years, reduce the provision for lease (F/P) account and record the lease expense (P/L) and VAT-input account for the amount due and paid. No extra VAT is claimed, and no VAT is written back.
  - - - Temporary differences occur when the carrying amount (accounting value) and tax base (tax value) of an asset or liability differ.
    - - Temporary differences only result from uneven leases where lease payments are made in advance or in arrears.
      - In an even lease, temporary differences do not result as the lease expense and lease payment are equal.
    - - Pre-paid Lease
        
        In a pre-paid lease, the carrying amount is equal to the pre-paid amount, and the tax base is the amount that will be deductible in future periods, which is nil because the full amount paid will be deducted for tax purposes in the year of actual payment.
      - Provision made on an Lease
        
        A provision made on a lease means the carrying amount is the amount provided, and the tax base is the carrying amount less the amount that will be deductible in future periods, which is nil because only the amount actually paid will be deducted for tax.
- - - - Installment payments exclude VAT.
    - - Wear and tear allowance is allowed as a deduction, not the repayments.
      - Ensure to follow the applicable tax rates and interest rates.
  - - - For assets, the carrying amount is the cost price less accumulated depreciation, while the tax base is the cost price less wear and tear allowance.
      - For liabilities, the carrying amount is the outstanding ICA (instalment credit agreement) amount, while the tax base is the carrying amount.
- - - - Carrying amount per category (Beginning & end of period) =
        
        Suitably described to indicate being a right-of-use asset
        
        Reconciliation of carrying amount