Chapter 4 - IFRS 16 - Leases

Question 1

• Lease Definition

Answer 1

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

Question 2

• Lessee Definition

Answer 2

An entity that obtains the right to use an asset for a period of time in exchange for consideration

Question 3

• Lessor Definition

Answer 3

An entity which provides the right to use an asset for a period of time in exchange for consideration

Question 4

• Accounting for Leases

Answer 4

The initial measurement of the lease liability is at the present value of the lease payments made over the term.

The discount rate is the interest rate implicit in the lease. Or; the incremental borrowing rate (the cost to obtain the funds to obtain the underlying asset)

Dr - Property, Plant & Equipment

Cr - Lease Liability

Question 5

• Depreciation of a Lease

Answer 5

The Depreciation period is the useful life of the asset if the ownership transfers to the lessee at the end of the term

• Present Value / Number of years*

Or;

The Depreciation period is the earlier of:

• The assets useful life
• The lease term

Question 6

• Lease Liability Journal Entries

Answer 6

Recognition of Lease:

Dr - Property, Plant & Equipment / Right of use assets
Cr - Lease Liability

Interest on the Lease:

Dr - Finance Costs
Cr - Lease Liability

Payment of Lease cost:

Dr - Lease Liability
Cr - Bank

Question 7

• Lease table entries

Answer 7

• Lease liability at start
• (Less lease payment)
• Sub-total
• Plus interest
• Lease liability at end (sub total + Interest)
• If lease payments are made at the end of the year -:
• Lease liability at start
• Interest
• Sub Total (Start + Interest)
• Less lease payment
• Lease Liability at end

Question 8

• Non Current liability / Current liability splits

Answer 8

Non Current liability = The lease liability at the end of NEXT year

Current liability = Next Years lease payment less next years interest