ASC 842/IFRS 16 Finance Lease Example

Let’s take as an example a copier lease. The copier costs $7,000 to purchase new; the lessor is willing to lease it to you for 3 years at a price of $230 per month, paid at the beginning of each month. Of that, $32 is identified as the cost of maintenance. If you borrowed money for three years to finance the purchase of the copier, your incremental borrowing rate would be 4%. If you bought the copier, you would normally depreciate it over 5 years. There is an option to buy the copier at the end of the lease for $1,000, which is estimated to be its fair market value at that time, however you have determined that you are reasonably certain you won’t exercise this option. You have no initial direct costs; you don’t know what, if any, initial direct costs the lessor has. Download now to access the full ASC 842/IFRS 16 Finance Lease Example!