Leases

Question 1

What are the 3 things we think about when it comes to leases?

Answer 1

Right to use asset, Exemptions and lease liability

Question 2

In order to apply right to use asset, what do we need?

Answer 2

1) We need to substantially have all the benefits ( Majority of risks and rewards)
2) We need to be in control
3) Supplier ( Lessor) cannot substitute an asset at a gain.

Question 3

What are the exemptions when we do not show leases as right to use asset and liability?

Answer 3

When there is a short term lease and when there is a low value asset.

Question 4

When do we treat a lease as short term lease and do we recognise the short term lease in SFP or I/S ?

Answer 4

When the lease is less than 12 months and recognise this in I/S

Question 5

Can we treat one with right to use asset and other expense to income statement in a short term lease?

Answer 5

No, if it is a short term lease, then each class of asset should be recognised in I/S

Question 6

Normally, how do we know if the lease is a low value asset?

Answer 6

If the asset is less than £5000, when it is new and whole life.

Question 7

Where do we recognise the exemptions?

Answer 7

I/S

Question 8

Do we recongise the lease incentive when calculating the exemption in I/S?

Answer 8

No, we have to take this out.

Question 9

What is included in the lease liability?

Answer 9

PV of future payments includes?

1) Fixed payment
2) Variable Payment ( Index/Rate)
3) Residual Value Guarantee
4) Purchase option
5) Termination Penalities

Question 10

Could we include the Variable payment if it is not index or rate?

Answer 10

No

Question 11

Do we use the future rate to calculate the variable payment?

Answer 11

No, we always use the current rate till it goes up next year and then you revalue

Question 12

Can the asset performance be included in Variable payment and be recognised under lease liability?

Answer 12

No, you recognise this in I/S

Question 13

Does the option to purchase have to be reasonably certain for you to add to lease liability?

Answer 13

Yes, otherwise you cannot recongise this

Question 14

In order to calculate right to use asset, what do we include?

Answer 14

Initial Measuement of L.L, Initial direct cost, less than the lease incentive and Estimated Dismantling/Restoration cost

Question 15

What are the causes of remeasurement of lease liability?

Answer 15

Lease term changes, Purchase option changes, Residul Value guarantees and Index/Rate(Paying more less than the variable payment)

Question 16

Once we calculated the remeasurement, where does the difference go to?

Answer 16

Right to use asset, after we have depreciated

Question 17

Do we recognise as Land and Building as leases?

Answer 17

Yes as these are the components in which the lessee can benefit from

Question 18

Is maintenance lease or non-lease?

Answer 18

Non-Lease

Question 19

How do we identify leases?

Answer 19

If the lessee can benefit from asset alone and asset and other readily available assets

Assets also not dependent on other assets ( Without substitute in the contract)