Argus Incorporated: a Lease Triangle

In: Historical Events

Submitted By ZOAY22
Words 611
Pages 3

This case is all about Susan Solomon who was the computer manager and working with ARGUS Corporate. She was working under his senior manager Craig - who was efficient in strong managerial abilities and he has a thorough knowledge of the company business. He hired susan because of her technical background and active participation in technology. so they both decided to work together to earn better results and to make Argus the leader in the market.
During her office hours, Susan get a phone call from Mr. Hayes that he hasn’t received his monthly lease payments. this event made Susan confuse. They Terminated The TEK USA lease eight months earlier and for this lease Argus has to give Rupees 380000 and tell TEK USA to return the Equipment.
Mr. Hayes claimed that he had bought the lease rights from TEK USA ,more than a year ago. so for terminating the lease he should get the payment and old equipment. He said that TEK USA was required by the lease agreement to notify Argus if any portion of rights were assigned to a third party and if the notice of assignment has been send by TEK USA, So Argus had made a mistake and if not so TEK USA will be responsible. so Susan took TEK USA contract file and saw the agreement. she was surprised to see the invoice generated by TEK USA in which it clearly written that TEK USA was transferring the rights to the lease payments and equipment to Mr. Hayes and it was addressed to Craig and dated just a year ago. so Susan realized that she has negotiated early termination with the wrong party. TEK USA had destroyed the equipment and now Argus have to pay the payment again. suddenly they realized that TEK USA was in a financial crisis and they lay off their 300 employees so asking money from them will be useless. and Mr. Hayes will ask its equipment compensation so this was all…...

Similar Documents


...Week 7- Leases An agreement whereby the lessor conveys to the lessee in return of a payment series the payments the right to use an asset for an agreed period of time. Step 1 Define a finance lease Lease Risks and rewards has the ownership being transferred Where ownership being risks and rewards Step 2: Discuss risks and rewards Risks: Insurance, maintenance, potential drop in residual value Rewards: use of assets, potential increase in residual value Who bears? Who enjoys? URV MLP MLP MLP Minimum lease payments All minimum payments required by the lessee to the lessor 1. Rental 2. GRV * Guaranteed residual value * The asset will buy the asset from the lessor 3. BPO * Bargain purchase option * Gives the right to lessee to buy the asset that lower than market value MLP = CI 1-11+In +(GRV+BPO1+in) URV * unguaranteed residual value 3 types of leases * Direct finance * Manufacture/ dealer * Sales & lease back Lessor 1. Initial recognition DR Lease receivable xx CR asset xx 2. Subsequent measurement Lease receivable = Pv (MCR) + PV( URV) 3. Subsequent measurement Lease schedule Lessee 1. Initial recognition (Sales & lease back) DR cash xx CR lease asset xx CR deferred gain (L) xx *Deferred gain needs to be amortized 2. record lease Dr......

Words: 402 - Pages: 2


...OUTLINE FOR TRIANGLE Misery lane-Manhattan’s Charity piers was where the bodies were laid out whenever disaster struck. March 26, 1911-makeshift morgue at end of pier where 100 women and two dozen men were laid out. March 25, 1911- Triangle fire took place. Most important and deadliest work place disaster for 90 yrs. Fire lasted ½ hour. 146 dead. Workplace safety was scarcely regulated, workmens comp was considered newfangled or socialist. Triangle fire was different because it was the crucial moment in a change of events-events that forced fundamental reforms fro the political machinery of New York, and, after New York the nation, America experienced a huge immigration, transfer of brain and labor power from abroad (especially from Europe) Max Blanck and Isaac Harris: prominent immigrant factory owners ‘Born in Russia, both men had immigrated to the United States in the early 1890s, and, like hundreds of thousands of other Jewish immigrants, they had both begun working in the garment industry. After a decade, the two men entered a partnership that would propel their careers and earn them the nickname of New York's "Shirtwaist Kings." T hey decided to enter a partnership that would capitalize on Blanck's business sense and Harris' industry expertise. In 1900, they founded the Triangle Waist Company and opened their first shop on Wooster Street. At the turn of the century, the shirtwaist was a new item. arris and Blanck moved their company to the ninth floor of the...

Words: 2293 - Pages: 10


... Applicable Standard * IAS 17: Leases Classification of Leases * Finance leases (substantially all of the risks and rewards of ownership are transferred to the lessee) * Operating leases (otherwise) * Note that because Land has indefinite useful life, it is typically classified as an operating lease Calculating Total Finance Charge over Lease Term * Total minimum lease payments (cash) * - Cost of the asset (i.e. lower of fair value and PV of minimum lease payments) * = Total finance charge Accounting for Operating Leases Accounting for Operating Leases as Lessee * P&L * Lease expense recognised in P&L. * Note that lease expense is an accrual item, not a cash item. It is calculated as the total lease payments (cash, incorporating any discounts or deposits) under the contract, spread evenly over the lease term. * Lease payment typically covers both interest and principal payments (just like a mortgage) * Balance sheet * Recognise an asset item (for pre-payments) or liability item (accrual for lease) due to the timing differences between cash payments and lease expense. Accounting in Operating Leases as Lessor * Continue to hold the asset in its books and depreciate as per normal. * Recognise the rental as income, accrual item on the income statement. * Differences in timing between cash......

Words: 1001 - Pages: 5


...Residential Lease Agreement THIS LEASE AGREEMENT is made and entered into this ______ day of ____________, 20 ____, by and between ______________________________ hereinafter referred to as "Landlord" and _____________________________, hereinafter referred to as "Tenant". 1. Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions contained herein, the dwelling located at _____________________________________________ for the period commencing on the _____ day of __________,20 ___, and thereafter until the _____ day of _____________, 20 ___, at which time this Lease Agreement shall automatically renew each year unless terminated in writing. The Tenant is required to give the Landlord in writing a notice 1 month (30 days) in advance of his/her moving. Notice must be given on the first day of a month. If notice is given after the first day of the month, the 1 month (30 day) notice will not start until the following month. (The notice must be one full calendar month starting on the first day of a month.) Rent may be increased at any time after first year and the security deposit cannot be used for rent. 2. Tenant shall pay as rent the sum of $ ____________ per month, due and payable monthly, in advance, no later than 5:00 p.m. by the fifteenth day of every month. Tenant further agrees to pay a late charge of $___________ for each day rent is not received after the forth of the month to the Landlord regardless of the cause, including......

Words: 3060 - Pages: 13


...Initial measurement The fair value of a liability for a lease termination under a cease-use date approach is the present value of the contractual obligation adjusted for valuation assumptions (e.g., market risk premium and/or profit margin) that reflect the amount a market participant would require to assume the obligation at the measurement date. In valuing a lease under the cease-use date approach, the fair value of the obligation should be determined based on the remaining lease rentals, adjusted for the effects of any prepaid or deferred items recognized, reduced by estimated sublease rentals that could be reasonably obtained, even if the entity does not intend to sublease (so long as it is contractually permitted). While ―remaining lease rentals‖ as discussed in ASC 420-10-30-8 is not defined in existing literature, ASC 420-10-30-9 states ―A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity shall be measured at its fair value at the cease-use date.‖ Therefore, if executory costs (e.g., common area maintenance costs, real estate taxes) are required to be paid by the lessee as part of the lease contract, those costs will continue to be incurred by the lessee and should be included in any calculation of contract termination costs. The measurement of any net liability would be a discounted amount that includes the nonperformance risk associated with the liability and an appropriate market......

Words: 471 - Pages: 2


...accounting treatment for this lease requires an analysis of several factors. We have received analysis from two accountants. Each analysis is incorrect. Our objective is to determine the proper accounting treatment for the lease. 1. Was the junior accountant’s analysis correct? Why or why not? The junior accountant has opinioned that the lease is an operating lease. He has reasoned that it is an operating lease because the equipment reverts to Lessor, Inc. at the conclusion of the lease term. This assertion would be correct if it were the only factor. However, International Accounting Standard (IAS) 17 (2010) lists “Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease” There are two other situations that qualify this lease as a financing lease. The lease term is a major part of the economic life of the asset. The lease term is 3 years. The useful life is four years. The present value of the lease payments amounts to at least substantially all of the fair value of the leased asset. The present value of the leased payments is $248,690. The fair value of the equipment is $265,000. the lease term is for the major part of the economic life of the asset even if title is not transferred; International Accounting Standard 17 (2010 states “Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are (a) the lease term is for the major part......

Words: 648 - Pages: 3


...Wren Co. leased a building to Brill under an operating lease for ten years at $50,000 per year, payable the first day of each lease year. Wren paid $15,000 to a real estate broker as a finder’s fee. The building is depreciated $12,000 per year. For year 1, Wren incurred insurance and property tax expense totaling $9,000. Wren’s net rental income for year 1 should be a. $27,500
 b. $29,000
 c. $35,000
 d. $36,500 3. (a) Net rental income on an operating lease is equal to rental revenue less related expenses, as computed below. Rental revenue $50,000 Depreciation expense (12,000) Executory costs (9,000) Finder’s fee ($15,000 ÷10) (1,500) Net rental income $27,500 The finder’s fee ($15,000) is capitalized as a deferred charge at the inception of the lease and amortized over ten years to match the expense to the revenues it enabled the lessor to earn 11. On January 1, year 1, Mollat Co. signed a seven-year lease for equipment having a ten-year economic life. The present value of the monthly lease payments equaled 80% of the equipment’s fair value. The lease agreement provides for neither a transfer of title to Mollat nor a bargain purchase option. In its year 1 income statement Mollat should report a. Rent expense equal to the year 1 lease payments.
 b. Rent expense equal to the year 1 lease payments less interest expense.
 c. Lease amortization equal to one-tenth of the equipment’s fair value.
 d. Lease amortization equal to one-seventh of 80% of......

Words: 3146 - Pages: 13


...appropriate risk evaluations of a firms statement of financial position”’. Leases are a common financial tool used by many businesses and individuals on a daily basis to transfer the ownership of many different types of assets. Creditors are largely involved with many leases and company balance sheets as they are always interested in making valued judgements of their financial position with the current leasing disclosure requirements providing some discrepancies for creditors in making these risk evaluations. These issues surrounding the treatment and disclosure of leases provide the need for rigorous speculation into the accounting treatment and classification of the different types of leases so that the users of financial statements are provided with a clear view of a firm’s financial position and performance. With the relative ease in which a company can manipulate the classification of their leases, it makes it hard for creditors to make valued judgements of a company’s balance sheet. The current guidelines of AASB 117 require a company to classify its leases as either a finance lease or an operating lease. Only finance leases are required to be disclosed on a company’s statement of financial position with operating leases being excluded. This is one potential issue arising for creditors as the balance sheet might therefore be an unreliable measure of a company’s financial position. Operating leases are a form of off-balance sheet reporting that “potentially enhances......

Words: 1077 - Pages: 5


...CHAPTER 21 ACCOUNTING FOR LEASES IFRS questions are available at the end of this chapter. TRUE-FALSe—Conceptual Answer No. Description T 1. Benefits of leasing. F 2. Accounting for long-term leases. F 3. Classifying lease containing purchase option. T 4. Accounting for executory costs. F 5. Depreciating a capitalized asset. F 6. Lessee recording of interest expense. T 7. Benefit of leasing to lessor. F 8. Distinction between direct-financing and sales-type leases. F 9. Lessors’ classification of leases. T 10. Direct-financing leases. F 11. Accounting for operating lease. F 12. Computing annual lease payments. T 13. Guaranteed residual value definition. F 14. Guaranteed vs. unguaranteed residual value. T 15. Unguaranteed residual value and minimum lease payments. F 16. Net investment and guaranteed/unguaranteed residual value. T 17. Difference between direct-financing and sales-type leases. F 18. Gross profit in sales-type lease. T 19. Review of estimated unguaranteed residual value. T 20. FASB required lease disclosures. Multiple Choice—Conceptual Answer No. Description d 21. Advantages of leasing. d 22. Advantages of leasing. b 23. Basic principle of lease accounting. c 24. Conceptual support for treating all leases as a sale/purchase. a S25. Essential element of a lease. b S26. Bargain purchase option and minimum lease payments. b P27. Cost amount for a capital lease. a 28. Lease accounting by......

Words: 14278 - Pages: 58


...shows that many of them have strong participation in lease financing. However, though leasing is considered as an alternative mode of long term lending, NBFIs contribution to total long term financing is still very small in amount. As on December 31, 2001 total financing of 25 licensed NBFIs stood Tk. 2,1240.7 million (NBFIs-FRs). According to the statistics of BB, 2.85 percent of the outstanding amounts of loans//leases was found classified as bad debt as on June 30, 2001 (BB, 2002) Page 8 3.2 NBFIs Performance in Leasing We discuss NBFIs performance in leasing specially in this section because of its some imposing features though leasing are analyzed under the head of long term financing in this paper for many times. One important feature is that the leasing industries in Bangladesh have grown significantly within the last 10 years. Competition among the leasing industries has been intensified and this competition in leasing business does not come only from the NBFIs but also from BFIs. Many commercial banks and other financial institutions like ICB (Investment Corporation of Bangladesh) are participating in the leasing business. The commercial banks are doing lease business as EZARA under Section 7 DA(4) of the Bank Companies Act 1991. Commercial banks are also taking advantage of their low costs of fund than the leasing companies. In this situation, leasing companies have an argument that if banks are allowed to do lease business, so they should be permitted to do......

Words: 6441 - Pages: 26


...Leases: Practical implications of the new Leases Standard Introduction The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) (the Boards) are working together to improve the accounting for leases. In an effort to achieve this objective, the Boards reached a common ground that a customer (lessee) leasing assets should recognise assets and liabilities arising from those leases, including leases that are off balance sheet today. The Boards jointly published a revised Exposure Draft Leases (the 2013 ED) in May 2013. The Boards received extensive feedback on their proposals, and have heard a broad range of views. Since March 2014 the Boards have re-deliberated on nearly all aspects of the project. They will decide upon the effective date of the new Leases Standard in the next few months. The IASB has indicated that it has plans to issue the new Leases Standard before the end of 2015. The lessee accounting model developed The model is from the view that, at the inception of a lease, the lessee obtains the right to use an asset for a period of time and has an obligation to pay for that right. Therefore, it requires that for all leases, the lessee should: * recognise lease assets and liabilities on the balance sheet, initially measured at the present value of unavoidable lease payments; * recognise amortisation of lease assets and interest on lease liabilities over the lease term; and * separate the total amount of cash paid......

Words: 1000 - Pages: 4

Triangle Fire

...| The Triangle Fire | | | ALEX I. EDWARDS | FIT | This paper speaks of the tragedy that took place in 1911, which in turn became a major clash between management and labor. However, end the end brought about new regulations and reforms that are still be used today. | If it weren't for the tragedy that took places many years ago, the lives sacrificed unknowing by the individuals who lost their lives in this tragedy, we today could be still working in hazardous, unfavorable conditions, long torturous hours, and next to nothing pay. The industrial period brought on many changes because of the united from of the NWTUL and NLA. The Labor Relations Process book discusses the Unions that developed and grew in this time period. There is a reason why we are required to have adequate fire escape routes. Fire alarms, fire safety plans in place, fire extinguishers available and ready to use. Annual or quarterly checks regarding compliance with regulations of public safety (1962). The fire at the Triangle Waist Company in New York City, which claimed the lives of 146 young immigrant workers, is one of the worst, traumatic, disasters since the beginning of the Industrial Revolution. The incident had great significance to this day because it highlights the inhumane working conditions to which industrial workers were subjected too. To many, its ugliness epitomize the boundaries of industrialism. The catastrophe still remains in the shared memory of the nation......

Words: 1599 - Pages: 7


...Sable sells and leases equipment to its customers. * Sable entered into a contract with Buildit Co. leasing a bulldozer for construction. * The lease term is 10 years and the economic and useful life of the bulldozer is 15 years. * Annual lease payments due at the end of every year will be $16,000. * Buildit is responsible for maintenance, insurance, and tax payments arising from the lease. * The residual value of the bulldozer at the end of the lease term is estimated at $24,000, although no guarantee of the residual value. * Lease does not transfer ownership of the asset at the end of the lease. * The bulldozer cost Sable $100,000 to manufacture and sells for $135,000. * Sable has recently been selling the bulldozer for $125,000 because of economic situations. * Implicit rate on $135,000 fair value is 5.45%. * Implicit rate on $125,000 fair value is 6.93%. * Payments are expected to be collected when due. Identification of Issues and Alternatives: The major question at hand in this case is whether or not the lease should be classified as a sales-type lease, a direct financing lease, a leveraged lease, or an operating lease. If the lease meets any of the criteria for being a capital lease and meets the extra required criteria for each classification then it is one of the first three, and if not then it is an operating lease. The determination of the type of lease will affect how the lease is classified......

Words: 1188 - Pages: 5

Lease lease can be recognized. The accounting method for a finance lease and for an operating lease is different. In the leases-joint project of IASB and FASB, opinions about accounting method of lessee divided under two accounting systems. FASB uses a dual approach and IFRS uses a single approach for lessee accounting. Under the single approach, a lessee will recognize all leases as “Type A” leases, which means recognize amortization of the right-of-use (ROU) asset separately from interest on the lease liability. Under IFRS, there are exemption of small-ticket leases and short-term leases for the accounting of lessee. For small-ticket leases, there is no clear benchmark about the classification of “small”. But short-term leases are leases that have leasing term of 12 months or less. Financial reports need to disclose more information weighing the cost. Considering this exemption is for the convenience of companies with insignificant leases, we design the line of 1% of total asset amount. As far as we concerned, comparing to the time limit, the proportion can reflect more precisely the impact on the company. Besides, for a small corporation, making an option for a lease whether to be finance lease or operating lease will cause a huge change of revenue of this year. In other words, we propose a new criterial for defining small assets and small-ticket leases. Therefore, the new standard is aligned with IASB. Scope The standard will be applied in accounting for leases......

Words: 717 - Pages: 3


...Changes to Accounting Standards for Leases Who is likely to be affected? Businesses which are lessees or lessors of assets and account for lease transactions using a leasing accounting standard which changes on or after 1 January 2011. General description of the measure Current accounting standards are International Accounting Standards (IAS) and UK Generally Accepted Accounting Practice (UK GAAP). Changes to the IAS lease accounting standard are expected during 2011, and changes to UK GAAP might follow in 2013. Legislation will be introduced in Finance Bill 2011 to ensure continuity of tax treatment for lease transactions for businesses which begin to account for the transactions under new accounting standards, expected to be introduced from 2011. The measure will require tax profits and losses to continue to be calculated as if the changes to lease accounting standards had not taken place. Policy objective The measure will ensure that existing tax rules that rely on accounting classifications of leases as operating or finance leases, and the accounting treatment of lease transactions, continue to operate in the way they currently do. The objectives are to: • • ensure that lessors and lessees will be neither disadvantaged nor advantaged by the proposed accounting changes; remove uncertainty for businesses about the future tax treatment of leasing contracts, arising from uncertainty about future lease accounting standards and their interaction with current tax......

Words: 2889 - Pages: 12