9. Leases

Question 1

procedure leases

Answer 1

1. Identify a lease
2. Initial measurement
3. Subsequent measurement

Question 2

1. Identify a lease

Answer 2

Question 3

2. Initial measurement

Answer 3

lease liability: measured a present value of unpaid lease payments
–» computed with annuity factor: ((1+i)^n-1) / ((1+i)^ni) or with discounted cash flows
-> annuity times the yearly lease payment for the present value

right of use asset: measured at cost (lease liability + other costs)

discount rate: interest rate implicit in the lease
if right of use asset is higher than the lease liability, the rest is in cash

Journal entries:
if the lease starts on the same day the first payment is due, the lease liability will automatically be lowered by the amount in the first journal entry

Question 4

3. Subsequent measurement

Answer 4

lease liability: measured on an ongoing basis, using an effective interest method

right of use asset: measured using cost model
–» cost - accumulated depreciation and impairment loss

journey:
depreciation // right of use asset

lease liability // bank
interest expense

interest expense=remaining lease liability*interest rate

BOTH RIGHT OF USE ASSET AND LEASE LIABILITY HAVE TO BE ADJUSTED BASED ON THE REMAINING MONTHS IN THE YEAR