IAS 17- Leases

Question 1

What benefit do leases have for cashflow

Answer 1

• has benefits for cash flow as money will flow out of the business over the period of use, rather than in one lump sum if the asset was purchased out right

Question 2

Lessee

Answer 2

Company or person leasing the asset

Question 3

Lessor

Answer 3

Company or person who is the legal owner of the asset

Question 4

IAS 17 requires a company to…

Answer 4

• put certain leased assets and the accompanying liabilities on the SFP even though the company does not enjoy legal ownership of those assets

Question 5

IAS 17 is split into two types

Answer 5

• finance lease

- operating lease

Question 6

Finance lease

Answer 6

• a lease that transferred almost all the risks and rewards of ownership of an asset to the lessee
• lessee usually pays the full cost of the asset, plus a charge on the finance provided by the lessor

Question 7

Operating lease

Answer 7

• a lease other than a finance lease
• the lessee pays a rental for the use of an asset for a period of time which is normally substantially less than its useful economic life

Question 8

Accounting treatment of finance leases

Answer 8

• applying concept of substance over form
• required to show as a non-current asset on the SFP with a corresponding liability which will reflect the future lease payments outstanding
• the asset will be depreciated over its economic useful life or lease term whichever is shorter

Question 9

Accounting treatment of operating leases

Answer 9

• lease the payments rentals as an expense in the P&L

- no entries recorded on the SFP