Chapter 11 - IFRS 16 leases

Question 1

What is a lease?

Answer 1

A contract that conveys the right to use an asset for a period of time in exchange for consideration

Question 2

At the commencement of the lease, what should the lessee recognise?

Answer 2

• a lease liability
• right of use asset

Question 3

What is the lease liability initially measured as?

Answer 3

Present value of unpaid lease payments

Question 4

What should lease payments include?

Answer 4

• Fixed payments
• Variable lease payments
• Amounts expected to be paid under residual value guarantees
• Purchase option
• Payment pens

Question 5

What is the right of use asset initially recognised as?

Answer 5

Cost

Question 6

What is included in initial cost of the right of use asset?

Answer 6

• Initial measurement of lease liability
• Lease payments made at/before commencement date
• Initial direct costs
• Costs of removal

Question 7

What is the double entry for an increase in the carrying amount?

Answer 7

Dr - Finance Costs
Cr - Lease Liability

Question 8

What is the double entry for a decrease in the carrying amount?

Answer 8

Dr - lease liability
Cr - Cash

Question 9

What are examples of low value assets?

Answer 9

• Tablets
• Laptops
• Telephones
• Small items of furniture

Question 10

What is used to determine whether an asset is low value?

Answer 10

Value when new

Question 11

What is the initial journal entry to record a lease?

Answer 11

Dr - Right of use asset

Cr - Lease liability

Cr - Cash

Question 12

how is the right of use asset calculated?

Answer 12

Lease liability + lease payments made + initial direct costs

Question 13

How is the lease liability calculated?

Answer 13

Lease payment x discount factor

Question 14

How is the initial cost of right of use asset calculated?

Answer 14

Initial liability + direct costs

Question 15

How is the right of use measured?

Answer 15

Initial cost - depreciation - impairment losses

Question 16

How is depreciation calculated when at the end of the lease ownership is transferred?

Answer 16

Depreciation charged over asset’s remaining useful life

Question 17

How is depreciation normally charged on a lease?

Answer 17

Charged on the shorter of:
- Useful life
- Lease term

Question 18

What are the headings for a payment in arrears lease liability table (left to right)?

Answer 18

Year
Bal b/f
Interest
(Payment)
Bal c/f

Question 19

What are the headings for a payment in advance lease liability table (left to right)?

Answer 19

Year
Bal b/f
(Payment)
Subtotal
Interest
Bal c/f

Question 20

On a payments in advance table, how is current liability calculated?

Answer 20

Year 1 Bal c/f - Year 2 subtotal

Question 21

On a payments in advance table, what reflects non-current liability?

Answer 21

Year 2 subtotal

Question 22

Where are finance costs expensed to?

Answer 22

SPL

Question 23

What is the method of constructing financial statements for payments in arrears?

Answer 23

• Calc lease liability
• Calc right of use
• Calc depreciation and finance costs
• Current and non-current liabilities

Question 24

What is the method of constructing financial statements for payments in advance?

Answer 24

• Calc lease liability
• Calc right of use (including advance payment)
• Calc depreciation and finance costs
• Current and non-current liabilities

Question 25

On a payments in arrears table, how is current liability calculated?

Answer 25

Year 1 c/f - year 2 c/f

Question 26

On a payments in arrears table, how are non-current liabilities calculated?

Answer 26

Year 2 c/f