{"id":3961,"date":"2019-10-08T13:33:00","date_gmt":"2019-10-08T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=3961"},"modified":"2025-02-13T10:34:22","modified_gmt":"2025-02-13T10:34:22","slug":"leases-from-a-lessors-perspective","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/","title":{"rendered":"Leases from a Lessor\u2019s Perspective"},"content":{"rendered":"\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/r1ck8FrAMtw\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>If the lessor substantially transfers all the risks and rewards incidental to legal ownership, the lease is reported as a finance lease. Consequently, the lessor reports a lease receivable on its balance sheet and removes the leased asset from its balance sheet.\u00a0Otherwise, if the lease is reported as an operating lease, the lessor keeps the leased asset on its balance sheet.<\/p>\n<p> <\/p>\n<p>Both IFRS and US GAAP stipulate that appropriate disclosures be made in relation to operating and finance leases. Due to the differences between these types of leases, however, some of the disclosure requirements are dissimilar.<\/p>\n<p> <\/p>\n<p>$$ \\textbf{Lessor} \\\\ \\begin{array}{|l|l|l|l|} \\hline \\begin{array}[t]{l} \\textbf{Operating} \\\\ \\textbf{Lease} \\end{array} &amp; \\begin{array}[t]{l} \\textbf{Retains asset on} \\\\ \\textbf{balance sheet} \\end{array} &amp; \\begin{array}[t]{l} \\textbf{Reports rent} \\\\ \\textbf{income reports} \\\\ \\textbf{depreciation} \\\\ \\textbf{expense} \\\\ \\textbf{on leased asset} \\end{array} &amp; \\begin{array}[t]{l} \\textbf{Rent payments} \\\\ \\textbf{received are} \\\\ \\textbf{an operating} \\\\ \\textbf{cash inflow} \\end{array} \\\\ \\hline \\begin{array}[t]{l} \\text{When present} \\\\ \\text{value of lease} \\\\ \\text{payments equals} \\\\ \\text{the carrying} \\\\ \\text{amount of the} \\\\ \\text{leased asset} \\\\ \\text{(called a direct} \\\\ \\text{financing} \\\\ \\text{lease in} \\\\ \\text{US GAAP)} \\end{array} &amp; \\begin{array}[t]{l} \\text{Removes asset} \\\\ \\text{from the balance} \\\\ \\text{sheet and} \\\\ \\text{recognizes} \\\\ \\text{lease} \\\\ \\text{receivables} \\end{array} &amp; \\begin{array}[t]{l} \\text{Reports interest} \\\\ \\text{revenue on} \\\\ \\text{lease} \\\\ \\text{receivables} \\end{array} &amp; \\begin{array}[t]{l} \\text{The interest} \\\\ \\text{portion of the} \\\\ \\text{lease payment} \\\\ \\text{received is either} \\\\ \\text{an operating or} \\\\ \\text{an investing cash} \\\\ \\text{inflow under} \\\\ \\text{IFRS and an} \\\\ \\text{operating cash} \\\\ \\text{inflow under} \\\\ \\text{US GAAP. The} \\\\ \\text{receipt of the} \\\\ \\text{lease principal} \\\\ \\text{is an investing} \\\\ \\text{cash inflow} \\end{array} \\\\ \\hline \\begin{array}[t]{l} \\text{When present} \\\\ \\text{value of lease} \\\\ \\text{payments exceeds} \\\\ \\text{the carrying} \\\\ \\text{amount of the} \\\\ \\text{leased asset} \\\\ \\text{(called a sales} \\\\ \\text{type lease} \\\\ \\text{under} \\\\ \\text{US GAAP)} \\end{array} &amp; \\begin{array}[t]{l} \\text{Removes asset} \\\\ \\text{and recognizes} \\\\ \\text{lease} \\\\ \\text{receivables} \\end{array} &amp; \\begin{array}[t]{l} \\text{Reports profit} \\\\ \\text{on sale and} \\\\ \\text{reports interest} \\\\ \\text{revenue on} \\\\ \\text{lease} \\\\ \\text{receivables} \\end{array} &amp; \\begin{array}[t]{l} \\text{The interest} \\\\ \\text{portion of the} \\\\ \\text{lease payment} \\\\ \\text{received is either} \\\\ \\text{an operating or} \\\\ \\text{an investing cash} \\\\ \\text{inflow under} \\\\ \\text{IFRS and an} \\\\ \\text{operating cash} \\\\ \\text{inflow under} \\\\ \\text{US GAAP. The} \\\\ \\text{receipt of the} \\\\ \\text{lease principal} \\\\ \\text{is an investing} \\\\ \\text{cash inflow} \\end{array} \\\\ \\hline \\end{array} $$<\/p>\n<p> <\/p>\n<p><sup>a<\/sup> US GAAP distinguishes between a direct financing lease and a sales-type lease, but IFRS does not. The accounting is the same for IFRS and US GAAP despite this additional classification under US GAAP.<\/p>\n<p> <\/p>\n<p><sup>b<\/sup> If providing leases is part of a company\u2018s normal business activity, the cash flows related to the leases are classified as operating cash.<\/p>\n<p> <\/p>\n<blockquote>\n<h3><strong>Question 1<\/strong><\/h3>\n<p>Under an operating lease contract, a lessor would <em>most likely<\/em>:<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li>Keep ownership of the asset and report the asset\u2019s depreciation.<\/li>\n<li>Keep ownership of the asset but the lessee would be required to report the asset\u2019s depreciation.<\/li>\n<li>Transfer ownership of the asset to the lessee but revoke ownership transfer if the lessee does not fulfill its contractual obligations.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>A<\/strong>.<\/p>\n<p>Under an operating lease contract, a lessor would keep ownership of the asset. Therefore, the lessor, not the lessee, would be required to report the asset\u2019s depreciation.<\/p>\n<\/blockquote>\n<p><\/p>\n<!-- \/wp:post-content -->","protected":false},"excerpt":{"rendered":"<p>Both IFRS and US GAAP stipulate that appropriate disclosures be made in relation to operating and finance leases. Due to the differences between these types of leases, however, some of the disclosure requirements are dissimilar. $$ \\textbf{Lessor} \\\\ \\begin{array}{|l|l|l|l|} \\hline&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-3961","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Lessor\u2019s Perspective on Leases | CFA Level 1 - AnalystPrep<\/title>\n<meta name=\"description\" content=\"Learn how lessors account for finance and operating leases under IFRS and US GAAP, including key disclosures and classifications.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lessor\u2019s Perspective on Leases | CFA Level 1 - AnalystPrep\" \/>\n<meta property=\"og:description\" content=\"Learn how lessors account for finance and operating leases under IFRS and US GAAP, including key disclosures and classifications.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2019-10-08T13:33:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-02-13T10:34:22+00:00\" \/>\n<meta name=\"author\" content=\"Simon\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Simon\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/\"},\"author\":{\"name\":\"Simon\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"headline\":\"Leases from a Lessor\u2019s Perspective\",\"datePublished\":\"2019-10-08T13:33:00+00:00\",\"dateModified\":\"2025-02-13T10:34:22+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/\"},\"wordCount\":611,\"articleSection\":[\"Financial Reporting and Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/\",\"name\":\"Lessor\u2019s Perspective on Leases | CFA Level 1 - AnalystPrep\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2019-10-08T13:33:00+00:00\",\"dateModified\":\"2025-02-13T10:34:22+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"description\":\"Learn how lessors account for finance and operating leases under IFRS and US GAAP, including key disclosures and classifications.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Leases from a Lessor\u2019s Perspective\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\",\"name\":\"Simon\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"contentUrl\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"caption\":\"Simon\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/r1ck8FrAMtw\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"2682\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2019-10-08T13:33:00+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Lessor\u2019s Perspective on Leases | CFA Level 1 - AnalystPrep","description":"Learn how lessors account for finance and operating leases under IFRS and US GAAP, including key disclosures and classifications.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/","og_locale":"en_US","og_type":"article","og_title":"Lessor\u2019s Perspective on Leases | CFA Level 1 - AnalystPrep","og_description":"Learn how lessors account for finance and operating leases under IFRS and US GAAP, including key disclosures and classifications.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2019-10-08T13:33:00+00:00","article_modified_time":"2025-02-13T10:34:22+00:00","author":"Simon","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Simon","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/"},"author":{"name":"Simon","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"headline":"Leases from a Lessor\u2019s Perspective","datePublished":"2019-10-08T13:33:00+00:00","dateModified":"2025-02-13T10:34:22+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/"},"wordCount":611,"articleSection":["Financial Reporting and Analysis"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/","name":"Lessor\u2019s Perspective on Leases | CFA Level 1 - AnalystPrep","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2019-10-08T13:33:00+00:00","dateModified":"2025-02-13T10:34:22+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"description":"Learn how lessors account for finance and operating leases under IFRS and US GAAP, including key disclosures and classifications.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/leases-from-a-lessors-perspective\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Leases from a Lessor\u2019s Perspective"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687","name":"Simon","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","contentUrl":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","caption":"Simon"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/r1ck8FrAMtw","og_video_type":"text\/html","og_video_duration":"2682","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2019-10-08T13:33:00+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/3961","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=3961"}],"version-history":[{"count":50,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/3961\/revisions"}],"predecessor-version":[{"id":39996,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/3961\/revisions\/39996"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=3961"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=3961"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=3961"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}