Lessee VS Lessor double accounting?

CFA Level I FRA
#1

Hi all,

I have problems understanding the following.

According to the curriculum, under IFRS (for all type of leases) a Lessee will recognize a leased asset in its balance sheet. On the other side, the Lessor (for operating leases) will retain the leased asset as well in its balance sheet.

This would mean that when a particular asset is leased as operating lease, both the Lessee and Lessor would have the same asset in their respective balance sheets.

Wouldn’t this cause distortion in the overall economy because an asset has been “duplicated” out of the blue, and now it appears in both companies at the same time? If many companies do this, wouldn’t the overall value of the companies in aggregation be higher than it should be?

Thanks

Lessor
Lessor1197×755 32.7 KB

#2

The Lessee will also have an offsetting liability for the leases so their equity value will not be impacted.

#3

Extract from the book: “The lessee reports a “right- of- use” (“ROU”) asset and a lease liability, calculated essentially as the present value of fixed lease payments, on its balance sheet.”

So the recognized liability is only the present value of the future leases payments, which I doubt it equates to the full amount of the asset to “offset” it.

#4

The ROU asset is not the fair value of the asset itself, just an offsetting asset to make sure the balance sheet balances.

#5

got it.

Thanks!