Brief Exercise 20-17

On January 1, 2020, Sunland Corporation (the lessee) entered into a four-year, non-cancellable equipment lease contract with Bramble Inc. (the lessor). The PV of the minimum lease payments required was $109,460. Also at lease inception, it was estimated that the equipment's economic life was eight years, and that its fair value was $142,000. The lease does not transfer title or contain a bargain purchase option and it is not for specialized equipment.

Assume that Sunland follows IFRS 16. How should Sunland set up this lease?

Sunland should set up the lease as

an operating lease

a right-of-use asset

.

Assume that Sunland follows ASPE. How should Sunland classify this lease?

Sunland should classify the lease as