Lease Accounting

Question 1

Lease according to IFRS 16 if;

Answer 1

1) There is an identified asset
i. explicitly or implicitly specified in the contract
ii. Supplier has no substantive right to substitute the asset
2) Right to control the use of the identified asset?
i. Right to obtain substantially all economic benefits
ii. Right to direct the use

Question 2

Right of use asset =

Answer 2

Lease liability
+ lease payments made at or before the commencement date
- Lease incentives received
+ initial direct cost incurred by the lessee
+ Estimate of the cost to be incurred by the lessee in dismantling and removing the underlying assets, restoring the site, etc

Question 3

Lease liability =

Answer 3

PV of:
Fixed payments
Variable payments
Expected payments under residual value guarantees
Exercise price of purchase option
Expected penalty for lease termination

Question 4

Subsequent measurement

Answer 4

General rule: Cost method

Question 5

Front loading:

Answer 5

The total expense higher in initial lease years due to interest expense

Question 6

Lessor accounting ~ Finance lease if;

Answer 6

Transfer of ownership
Purchase option (reasonably certain)
Lease term (major part of the remaining economic life)
Present value (PV of the lease payments amount to substantially all of the fair value)
Alternative use (specialized in nature)
Cancellability (if lessee cancels the lease, is the lessee responsible for any losses)
Gains/losses from fluctuation (is the lessee entitled to the gains or losses)
Option to extent at lower than market rent

Question 7

Lessor- how t account for finance lease?

Answer 7

Derecognize leased asset and records a lease receivable