Financial Reporting: Leases

Question 1

Initial lease JE in IFRS from the lessee’s POV

Answer 1

dr. ROU asset

cr. lease liability

Question 2

Under IFRS, the ROU cost includes

Answer 2

initial measurement of lease liability, any lease payments made at or before the commencement date, less any incentives received, any initial direct costs incurred, an estimate of costs to be incurred at termination

Question 3

ROU asset: depreciation period

Answer 3

lesser of:

lease term OR the asset’s useful life

Question 4

Low value leased assets: 3 criteria

Answer 4

The asset is of low value when it is new

The lessee can benefit from the use of the asset on its own or together with readily available resources

The lease asset is not highly dependent on or highly integrated with other assets

eg. tablet, personal computer, telephone. NOT a car

Question 5

IFRS disclosures required of lessee

Answer 5

_deprec & interest expense related to ROU asset
_expense related to short term leases, low value leases, and variable payments directly expensed
_additions to ROU assets and the net carrying amount at the end of the period, separated for each class of ROU asset
_any gain or loss on sale-leasebacks
details of the lease arrangement including basis, terms, restrictions, lease commitments, nature of the leasing activity, exposure to future cash flows related to variable payments, extention or termination options, residual value guarantees

Question 6

Lessor POV: finance lease criteria

Answer 6

1. title transfers to lessee by the end of the lease term
2. a bargain purchase option exists, and at the date the lease begins, it is reasonably certain that the lessee will accept it
3. the lease term is of such a duration that the lessee will receive substantially all the economic benefits expected to be derived from the use of the leased property over its lifespan
4. The present value (PV) of the minimum lease payments amounts to substantially all of the fair value (FV) of the asset
5. the asset is specialized in nature an donly the lessee can use it without major modifications

Question 7

Operating lease from lessor’s POV

Answer 7

risks & rewards of ownership are never assumed to have transferred; lessor records lease revenue over the course of the lease on a straight line or other systematic basis