Chdpt 9 Leases

Question 1

Accounting treatment of finance leases by Leese

Answer 1

At inception:
Debit PPE x
Credit financial lease liability x

Where x = The lower of fair value leased asset or present value minimum lease payments

Question 2

PPE depreciation calculation

No years?

Answer 2

Over a shorter of lease term and useful economic life

Question 3

Sum of digits

Answer 3

= n(n+1)/2

Question 4

Operating lease

Dr/Cr

Answer 4

Credit cash

Debit operating lease

Question 5

Operating lease expense

Answer 5

= total cost/ life of lease

Question 6

Sale and finance lease

Dr/Cr initial and also YE

Answer 6

Initial:
Debit cash
Credit non-current asset at carrying value
Credit deferred income

Then:
Debit NCA (asset FV)
Credit finance lease liability

Question 7

SP = FV

Answer 7

Profit/loss in POL

Question 8

SP

Answer 8

Profit/loss immediately unless bc future rentals below MP

Debit cash
Credit non current asset (carrying amount)
Dr prepayments

Each year reverse prepayment :
Dr SPL
Cr prepayment

Question 9

SP>FV

Excess profit

Answer 9

Dr cash
Cr NCA
Cr SPL profit on disposal (FV-CA)
Cr SFP deferred income (SP-FV)

Def income each year:
Dr def income
Cr SPL