Bonne Sante Case

713 Words May 27th, 2015 3 Pages
Bonne Sante S. A. Case

Truck (short term lease)

1) Right of use asset 800
Lease obligation 800

Interest expense 40
Lease obligation 760
Cash 800

Retail Outlet

2) Right of use asset 10,000
Lease obligation 10,000

Interest expense 17
Lease obligation 9983
Cash 10000

Under the previous IAS 17 by the (IASB), in operating lease, the lessee does not need to recognize the leased asset in their Balance Sheet. In 2010, August, the IASB issued an ED, changing various changes to the IAS 17. The overall effect of the new ED was that lessees would have to recognize a “right-to-use” asset and a lease liability in term of Lease Interest for all of their long and short term
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▪ Amortization expense of the right-of-use asset, amortized over the life of lease agreement or over the useful life estimated against the respected asset, whichever is shorter.
▪ Revaluation gains or losses when a right-of-use asset is revalued.
▪ Any increase/decrease or expected change in the obligation to pay lease payments as a result of the re-estimation of the expected payments under term option or the amount of contingent rentals and scrap value guarantees relating to current or prior periods..
▪ Any impairment losses on a right-of-use asset.

Also at the date of the lease, a lessee should measure:
▪ The financial obligation to make lease payments at the present value of the future lease payments,
▪ The right-of-use asset at the amount of the financial obligation to make rental payments
▪ A lessee shall evaluate the lease periods by estimating the chances of renew for each possible term
▪ A lessee shall evaluate or calculate the present value of lease payments

3) Management has the option to choose between the fair value or the cost model in recognizing the “right of use” asset and therefore determine lease payments. The judgment lies with a new location that Bonne Sante might open. Management needs to take into consideration that the fair value approach fluctuates based on traffic and the popularity of the location. For a more stable approach management might want to consider the cost model method in determining the amounts.

4)

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