Leases

Question 1

What is a lease

Answer 1

an agreement where a lessor conveys to a lessee to the right to use an asset for an agreed period of time in return for a payment or series of payments

Question 2

What is the standard

Answer 2

AASB 117

Question 3

AASB 117

Answer 3

• recognises financial and operating leases

- excludes service agreements, resource exploration rights or licensing agreements

Question 4

Financial lease if

Answer 4

1. the lease is non-cancellable
2. ownership is to be transferred at the end of the lease term
3. covers a major part of the asset’s economic life
4. present value of minimum lease mayments (MLP) substantially represent the fair value of the asset
5. leassee bears substantially all owenership rewards and risks

Question 5

mis-classification

Answer 5

• recording as operating removes assets and liabilities> improves asset ratio
• operating leases don’t count as liability > further finance can be raised