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FAR Chapter 24 · Area III · Blueprint III.F

Almost every lease now appears on the lessee's balance sheet as a right-of-use asset and a lease liability. What still differs is how the cost reaches the income statement. The Blueprint asks you to recall the criteria for classifying a lease as finance or operating, to calculate the lease liability and right-of-use asset, including the effect of residual value guarantees, purchase options and variable payments, and to calculate lease cost. FAR tests the lessee only. Lessor accounting is in BAR. One five-year lease runs through the chapter.

In this chapter

1. What a lease is, and the short-term exemption
2. Finance or operating: the five tests
3. Measuring the lease liability
4. Measuring the right-of-use asset
5. Finance lease: interest plus amortization
6. Operating lease: one straight-line cost
7. Purchase options, variable payments and presentation
8. Changes after commencement, shortcuts and the notes

This chapter has 8 lessons, 51 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

• Finance versus operating classification
• lease liability and right-of-use asset
• residual value guarantees, purchase options and variable payments
• lease cost

Chapter 23: Fair value measurement · Chapter 25: Subsequent events