Comparison between U.S. GAAP and International ... - Grant Thornton

Comparison between U.S. GAAP and International Financial Reporting Standards 60
IFRS
Leases involving land and buildings:
• The classification of the land and building elements
of a lease shall be assessed as a finance or
operating lease separately in accordance with the
requirements of paragraphs 7-13 of IAS 17. An
important consideration in determining whether the
land element is an operating or a finance lease is
that land normally has an indefinite economic life.
The land and building components of a lease may
be treated as a single unit for purposes of lease
classification if the land element is not material
(IAS 17.15A and .17).
• The minimum lease payments shall be allocated
between land and buildings in proportion to their
relative fair values at inception of lease. If the lease
payments cannot be allocated reliably then the
entire lease shall be treated as a finance lease,
unless it is clear that both elements are operating
leases (IAS 17.16).
• If lessee’s interest in land and buildings is classified
as investment property in accordance with IAS 40
and carried under fair value model, it is not
necessary to split the land and buildings
(IAS 17.18).
Sale and leaseback:
• For sale and finance leaseback transactions, gain
shall be deferred and amortised over the lease
term (IAS 17.59)
• For sale and operating leaseback transactions
(IAS 17.61):
If sales price is at fair value, profit/loss shall be
recognised immediately
If sales price is below fair value, profit/loss
U.S. GAAP
Direct financing leases: Net investment consists
of gross investment plus any unamortized initial
direct costs less unearned income. Gross
investment is minimum lease payments, net of
executory costs, plus unguaranteed residual
value accruable to the benefit of the lessor. The
difference between the gross investment and the
cost or carrying amount of the leased property
shall be recorded by the lessor as unearned
income.
Lessor's income under a direct financing lease is
calculated using a rate that will produce a
constant periodic rate of return on the net
investment in the lease (ASC 840-30-35-23).
Leases involving land and buildings:
• For capital leases in which the lease transfers
ownership of the property to the lessee by the end of
the lease term or contains a bargain purchase option,
the lessee’s capitalized amount must be apportioned
between land and building based on their relative fair
values at lease inception (ASC 840-10-25-38).
Detailed guidance on the lessor’s accounting is
included in ASC 840-10-25-60 through 25-62.
• For leases that do not meet the ownership transfer or
bargain purchase option criteria noted above, the
land and buildings are considered separately if the
fair value of the land is 25 percent or more of the
value of the leased property at the inception of the
lease. Detailed guidance on the lessee and lessor
accounting is included in
ASC 840-10-25-38 and 25-63 through 25-68.
• U.S. GAAP does not permit leases of land and
buildings to be recorded at fair value
Sale and leaseback
• For sale and leaseback transactions, profit or loss is
generally deferred and amortized unless
(ASC 840-40-25-3 and 840-40-35-1):
The leaseback is minor as defined in ASC 840,
the sale and leaseback shall be accounted for as
separate transactions based on their respective
terms (ASC 840-40-25-3).
The leaseback is more than a minor part but less
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