IFRS 16

Question 1

What does IFRS 16 leases not apply to?

Answer 1

Non-regenerative resources
IAS 41
IFRS 15
IAS 38

Question 2

What may a lessee elect to account for?

Answer 2

Lease payments as an expense on a straight-line basis over lease term

Question 3

What happens with leases with a lease term of 12 months or less and containing no purchase options?

Answer 3

This election is made by class of underlying asset

Question 4

Example where an election can be made on a leas-by-lease basis?

Answer 4

Leases where underlying asset has low value when new

Question 5

When is a contract a lease?

Answer 5

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

Question 6

Where is control conveyed?

Answer 6

Where customer has both right to direct identified asset’s use

Obtain all economic benefits from that use

Question 7

How is an asset typically identified?

Answer 7

By being explicity specified in a contract

Question 8

Where a supplier has substantive right of substitution throughout period of use?

Answer 8

Customer does not have a right to use an identified asset

Question 9

When is a supplier’s right of substitution only considered subtantive?

Answer 9

If supplier has both practical ability to substitute alternative assets throughout period of use and would economically benefit from substitution

Question 10

When is a capacity portion of an asset still an identified asset?

Answer 10

If it is physically distinct

Question 11

For a contract that contains a lease component and additional lease and non-lease components?

Answer 11

Lessees shall allocate consideration payable on basis of relative stand-alone prices

Question 12

What may a lessee elect?

Answer 12

Account for all components as a lease

Question 13

Interest rate implicit in the lease?

Answer 13

Interest rate that yields a present value of the lease payments and unguaranteed residual value

Question 14

Lease payments and unguaranteed residual value must equal?

Answer 14

The fair value of the underlying asset

Initial direct costs of the lessor

Question 15

What is the lease term?

Answer 15

Non-cancellable period for which a lessee has right to use an underlying asset

Question 16

What is added on to the non-cancellable period?

Answer 16

Periods covered by an extension option and termination option

Question 17

What is the lessee’s incremental borrowing rate?

Answer 17

Rate of interest a lessee has to pay to borrow funds necessary to obtain an asset similar to right-of-use asset

Question 18

What happens upon lease commencement?

Answer 18

A lessee recognises a right-of-use asset and a lease liability

Question 19

How is right-of-use asset initially measured?

Answer 19

Amount of lease liability + initial direct costs incurred by the lessee

Question 20

When maya djustments to leases be required?

Answer 20

For lease incentives

Question 21

What happens after lease commencement?

Answer 21

Shall measure right-of-use asset through cost model. Unless IAS 40 or IAS 16

Question 22

Cost model for right-of-use asset?

Answer 22

Cost - accumulated depreciation - accumulated impairment

Question 23

How is lease liabiltiy initially measured?

Answer 23

At PV of the lease payments payable over the lease term, discounted at rate implicit in lease if it can be readily determined

Question 24

If rate can’t be determined in lease liaibility?

Answer 24

Use their incremental borrowing rate

Question 25

What happens with variable lease payments are included in measurement of lease liabiltiy?

Answer 25

These are recognised in profit or loss in the period in which condition that triggers payment occurs

Question 26

When is lease liability subsequently measured to reflect changes?

Answer 26

In lease term
Assessment of purchase option
Amounts payable under residual value guarantees
Future lease payments

Question 27

How are remeasurements treated?

Answer 27

As adjustments to the right-of-use asset

Question 28

How shall lessors classify each lease?

Answer 28

As an operating lease or a finance lease

Question 29

When is a lease classified as a finance lease?

Answer 29

If it transfers substantially all risks and rewards incidential to ownership of an underlying asset

Question 30

Examples of a finance lease?

Answer 30

Transfers ownership
Option to purchase asset at price lower than fair value
Term for major part of economic life of asset

Question 31

How should lessor recognise assets held under a finance lease?

Answer 31

As a receivable at amount equal to net investment in the lease

Question 32

How does lessor reoognise finance income?

Answer 32

Over the lease term of a finance lease

Question 33

What happens at commencement date/

Answer 33

Lessor recognises selling profit or loss in accordance with its policy for outright sales

Question 34

How does a lessor recognise operating lease payments?

Answer 34

As income on a straight line basis

Question 35

What is done to determine whether transfer of an asset is accounted for as a sale?

Answer 35

Entity applies requirements of IFRS 15 for determninig when performance obligation satisfied

Question 36

What if asset transfer satisfies IFRS 15’s requirements to be accounted for as a sale?

Answer 36

Seller measures the right-of-use asset at proportion of previous carrying amount of gain/loss that relates to rights transferred to buyer

Question 37

What if fair value of sale consideration does not equal the asset’s fair value?

Answer 37

Sales proceeds are adjusted to fair value

Question 38

How does a seller-lessee subsequently measures lease liabilities?

Answer 38

From a leaseback in a way that it doesn’t recognise any amonut of gain or loss relating to right of use