IFRS 16 Leases

Question 1

Lesse A/C

Answer 1

• Shall be treated as finance lease
• the lease asset shall be capitalised based on the lower of fair value or present value of minimum lease payments
• The lease asset shall be known as right of use asset or PPE
• The right of use asset shall be amortised over the lower of lease term or useful life of the asset
• the corresponding liability shall be accrued and is known as lease obligations
• Finance cost on lease obligation will be expensed to SOPL
• Repayment of lease rental is actually for payment of principal and finance costs for the year.
• The cash paid shall reduce the lease obligation as well as the interest accrual previously created.

Question 2

Finance Lease

Answer 2

Lessor should derecognise the PPE with corresponfing gains or loss recognised to SOPL (difference between lease receivable (sales proceed) and carrying amount of PPE

Question 3

A contract contains a lease if it

Answer 3

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

Question 4

Sale and leaseback transaction (definition)

Answer 4

Occurs when an entity transfers an asset to another entity and leases back from the buyer.

Question 5

Accounting treatment for the sale and leasback

Answer 5

1. Derecognise the underlying asset
2. Recognise the sale at fair value
3. Recognise only the gain/loss which relates to the rights transferred to buyer/lessor
4. Recognise a ROU asset as a proportion of the previous carrying amount of the underlying asset.
5. Recognise a lease liability