What is Lessor initial direct costs?
In short
Initial direct costs are incremental costs of getting a lease that wouldn't have been incurred if it hadn't been signed, such as commissions. Their treatment by a lessor depends on the type of lease.
Key takeaways
- In a sales-type lease with selling profit or loss, they are expensed at commencement; otherwise they are deferred in the net investment.
- In a direct financing lease, they are included in the net investment.
- In an operating lease, they are deferred and expensed over the lease term.
Where it's tested
BAR: Lease Accounting — Lessor Perspective — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a sales-type lease where the asset's fair value is greater than its carrying amount, how does the lessor treat its initial direct costs?