Chapter 8 - Lease

Question 1

Lease

Answer 1

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

Question 2

Lessor

Lease

ROU asset

Answer 2

Lessor PROVIDES the right in exchange RECEIVES

Lessee OBTAINS the right in change of TRANSFER consideration

ROU asset - lessees right to use an underlying asset over its lease term

Question 3

IFRS 16 what is a contract

Answer 3

A contract contains a lease if it conveys the right to use an identified asset for a period of time in exchange for consideration.

Question 4

ROU asset - at cost recognised as:

Answer 4

Recognised at cost which is =

• initial liability of lease liability
• payments made at or before commencement
• initial direct costs
• estimated cost of an asset dismantle or removal

Question 5

Lessor accounting

Answer 5

Establish it’s not same as lesseee

Either finance or operating lease - which is classified at inception. There is a list of indicators whether it is a finance lease.

How do we know it is an operating lease. All down to the risks and rewards determines this.

Question 6

Indicators of a finance lease (one of the following applies)

Answer 6

• ownership of asset transfers at end of lease term
• lessee has the option to purchase the asset for less than expected fair value and is reasonably certain to occur
• lease term is for the major part of the assets useful life
• at inception. The PV of lease payments amounts to subs all of the FV of leased asset
• leases assets are specialised
• lessee will benefit from changes in assets RV
• lessee can continue to use the lease for a secondary period in exchange for rent payments that are much lower than MR