Chapter 8 - Leases

Question 1

What is a lease?

Answer 1

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

Question 2

What is the definition of a lessor?

Answer 2

The entity that provides the right-of-use asset and, in exchange, receives consideration

Question 3

What is the definition of a lessee?

Answer 3

The entity that obtains use of the right-of-use asset and, in exchange, transfers consideration

Question 4

What is the definition of a right-of-use asset?

Answer 4

The lessee’s right to use an underlying asset over the lease term

Question 5

How does IFRS 16 leases require a lessee to recognise a lease?

Answer 5

Recognise an asset and a liability unless the lease is short term or of a minimum value

Question 6

When does a contract contain a lease?

Answer 6

The right to control the use of an identified asset for a period of time in exchange for consideration

Question 7

What must a contract give the customer?

Answer 7

The right to substantially all of the identified asset’s economic benefits or the right to direct the identified asset’s use

Question 8

How do you recognise a lease liability?

Answer 8

Fixed payments + variable payments, amounts expected to be paid

Question 9

How do you recognise a right of use asset?

Answer 9

Initial value of the lease liability + deposits + direct costs + removal costs

Question 10

What does the lease term compromise of?

Answer 10

Non-cancellable periods, periods covered by an extension or termination

Question 11

What is the definition of a finance lease?

Answer 11

Where the risks and rewards of the underlying asset substantially transfer to the lessee

Question 12

What is the definition of a operating lease?

Answer 12

Lease that is not a finance lease

Question 13

When is a lease a finance lease rather than a operating lease?

Answer 13

1. Ownership transfers
2. Option to purchase
3. Lease term is the major part of the assets economic life
4. Present value of the lease payments amounts to substantially all of the fair value of the asset
5. Specialised asset

Question 14

How does a lessor account for an operating lease?

Answer 14

Operating lease on a straight line basis over the lease term

Question 15

How does a lessor account for a finance lease at inception?

Answer 15

Present a receivable, should be equal to net investment in the lease

Question 16

How do you calculate the net investment is the present value?

Answer 16

1. Fixed payments, variable payments, residual value guarantees, unguaranteed residual values, termination penalties

Question 17

How should a seller-lessee record a transfer if its not a sale?

Answer 17

Continue to recognise asset, and recognise a financial liability equal to proceeds received

Question 18

How should a seller-lessee record a transfer if it is a sale?

Answer 18

Recognise the asset, recognise a right-of-use asset as the proportion of the previous carrying amount, recognise a lease liability