Thanks for this video ! I have a follow up question about the last part of video, what if the expected RV is less than the guaranteed RV and the shortfall is LESS than the lessee had anticipated ? Example, guaranteed RV is $15k, lessee anticipated that RV will be $10k, so they take $5k into consideration when computing for PV of lease payment.. But then the actual RV at the end turned out to be $12k, what will be the effect ? Is there a gain to be recognized or no effect at all ? Thanks !
that's a great question, since Michael didn't reply, I thought I'd try. In this case you wouldn't recognise a gain on the residual value as you only account for the shortfall when calculating your lease liability/payments. Using Michael's example in the description, if the lessee expects the residual value to be higher than the guarantee, then they wouldn't have to worry about the payment so they'd remove that from their calc. I believe in this case it'd be the same thing where if they originally accounted for a shortfall but then the value is higher than the GRV (guaranteed residual value), they would probably have to adjust their lease liability balance on their SOFP but that'd be all they could do I guess.
Thanks for this video ! I have a follow up question about the last part of video, what if the expected RV is less than the guaranteed RV and the shortfall is LESS than the lessee had anticipated ? Example, guaranteed RV is $15k, lessee anticipated that RV will be $10k, so they take $5k into consideration when computing for PV of lease payment.. But then the actual RV at the end turned out to be $12k, what will be the effect ? Is there a gain to be recognized or no effect at all ? Thanks !
that's a great question, since Michael didn't reply, I thought I'd try. In this case you wouldn't recognise a gain on the residual value as you only account for the shortfall when calculating your lease liability/payments. Using Michael's example in the description, if the lessee expects the residual value to be higher than the guarantee, then they wouldn't have to worry about the payment so they'd remove that from their calc.
I believe in this case it'd be the same thing where if they originally accounted for a shortfall but then the value is higher than the GRV (guaranteed residual value), they would probably have to adjust their lease liability balance on their SOFP but that'd be all they could do I guess.