Leases - lessor accounting - part 2

In this lesson

1. 0:00 Lessor accounting and lease classification
2. 0:56 Finance leases: derecognition and receivables
3. 2:02 Operating leases: asset retention and depreciation
4. 4:08 Double entry mechanics for both lease types
5. 7:31 Freddie's building lease: numerical worked example
6. 9:54 Loss on disposal and initial measurement
7. 10:41 Amortised cost remeasurement at year end

About this lesson

The lesson works through two detailed examples. First, you'll see how Eric, a lessor with two lease agreements, must classify each one based on its length and terms. For finance leases (typically longer-term arrangements), the lessor removes the asset from non-current assets and records a lease receivable instead, then remeasures it at amortised cost each year. For operating leases (short-term, typically 12 months or less), the lessor keeps the asset on the balance sheet, continues to depreciate it, and recognises rental income in the profit and loss account. The second example deepens your understanding with realistic numbers. You'll see how to handle the initial recognition of a lease receivable, including any gain or loss on disposal when the asset's carrying value differs from the present value of lease receipts. Crucially, you'll learn the double entries required: removing the asset, recording the receivable, recognising interest income based on the market rate of interest, and accounting for cash receipts as they arrive. By the end, you'll understand how the receivable gradually decreases over the lease term as interest accrues and payments are received.

Duration: 13m