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Accounting for leases
lessee has no right over the residual asset, unless the lessee has purchase option that it is reasonably
certain of being exercised or title is transferred at the end of the lease term
While not an exhaustive list, a lessor should consider the following in developing its estimate of
expected credit losses related to the lease receivable:
□ The lessee's credit risk as it relates to its ability to pay the cash flows during the lease
□ The lessee’s credit risk as it relates to its ability to pay lessee-provided residual value guarantees
□ The lessee’s credit risk as it relates to amounts due on exercise of a purchase option reasonably
certain of being exercised
□ The mitigating impact of cash flows associated with guaranteed and unguaranteed residual values
of the leased asset
4.7.1.2 Unguaranteed residual asset
The amount used to assess impairment of the unguaranteed residual asset would be an assumed lump
sum payment related to the expected residual value at the end of the lease term. This could be, for
example, the sale of the asset at auction.
4.7.2 Operating leases
Lessors should follow the guidance in ASC 360 regarding the impairment of long-lived assets for
assets subject to an operating lease. See PPE 4 for further guidance on the impairment of tangible and
intangible assets.
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