Chapter 12 - Leases Flashcards

1
Q

What is a lease?

A

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

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2
Q

What is the lessor?

A

the entity that provides the right to use an underlying asset in exchange for consideration

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2
Q

What payments would be included when recognising a lease liability?

A
  • fixed payments
  • amounts expected to be paid under residual value guarantees
  • options to purchase that are reasonably certain to be exercised
  • Termination penalties if lease term reflects expectation that they will be incurred
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2
Q

What is a right of use asset?

A

represents a lessee’s right to use an underlying asset for the lease term

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2
Q

What is the lessee?

A

entity that obtains the right to use an underlying asset in exchange for consideration

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3
Q

What does a lease term comprise of?

A
  • non-cancellable periods
  • periods covered by an option to extend the lease if reasonably certain to be exercised
  • periods covered by an option to terminate the lease if these are reasonable certain not to be excerised
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3
Q

How do we recognise a lease liability?

A
  • at present value of payments not yet made that will probably be made.
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3
Q

How is the table laid out for lease payments made in arrears?

A

Balance b/f. Interest. paid. balance c/f

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3
Q

How do we recognise right-of-use asset?

A

Recognise at cost, which equals:
- initial value of lease liability
- payments made at or before commencement
Together with any acquisition costs normally capitalised, such as:
- initial direct costs
- estimated costs of asset removal or dismantling as per lease conditions

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3
Q

What is the double entry for cash payments that reduce the lease liability?

A

Dr Lease Liability
Cr Cash

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3
Q

How is the subsequent measurement of the right-of-use asset measured?

A

unless another model is chosen then the cost model. cost - acc depn and impairement losses

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3
Q

The increase of the liability by the interest charge is recorded how?

A

Dr Finance Costs (SPL)
Cr Lease Liability

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3
Q

How is the table laid out for payments made in advance?

A

Balance b/f Paid. Net. Interest. Balance c/f

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4
Q

The asset is depreciated if what?

A
  • if ownership transfers to the leassee at the end of the lease, over the remaining useful life of the asset
  • if ownership does not transfer to the leassee at the end of the lease, over shorter of the lease term and useful life of the asset
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5
Q

If lease payments are made in advance when are they made?

A

start of the year, so must be deducted before calculating interest

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6
Q

What happens if the initial liability is based on the present value of future lease payments

A

there will be no lease payment in the first year

7
Q

If lease payments are made in arrears, they are made when?

A

made at the end of the year, so interest must be calculated, and added to the liability before deducting the lease payment

8
Q

If the lease is short-term (12 months or less at the inception date) or of a low value how can it be recognised?

A

lessee can choose to recognise the lease payments in profit or loss on a straight line basis.

9
Q

How is the annual expense in the SPL calculated for a short term lease?

A

total lease payments over the life of the lease / total lease period

10
Q

If a company enters into a lease part-way through the year, how do we recognise it?

A

we will need to time apportion

11
Q

How is the lease liability shown in the SFP?

A

split between its current and non current elements

12
Q

How is the non current element calculated?

A

by calculating the liability remaining immediately after next year’s lease payment

13
Q

What is the accounting treatment if a transfer is not a sale?

A

Continue to recognise as asset
Recognise a financial libaility equal to proceeds received

14
Q

What is the accounting treatment if a transfer is a sale?

A

De-recognise the asset.
Recognise a right-of-use asset as the proportion of the previous carrying amount that relates to the rights retained.
Recognise a lease liability at F.V of lease payments.
P or L on disposal

15
Q

how is the right-of-use asset calculated?

A

(lease liability/sale proceeds) x carrying amount of asset