Leasing

Question 1

What is the recognition criteria of a lease

Answer 1

Right of control (direct use of asset)
Identified asset (specific asset)
Right to all benefit (not shared)

Question 2

What is inception accounting in relation to leasing?

Answer 2

When you recognise lease and right of use.
To calc lease liability- discount PV of unpaid payments

Question 3

Give double entry for right of use assets (lease)

Answer 3

Dr right-of-use (NCA)
Cr lease liability (PV of payments not made)
Cr cash/payable (initial costs and advance payments)

Question 4

How do you calculate finance cost (SPL) and liabilities (SFP) in relation to leases- give 2 ways

Answer 4

Use lease liability table.
Payment in arrears: BF, Interest (bf x interest) - payment (fixed)= total (CF)

Payment in advance: BF, - payment, total, interest (total x interest)= CF (total)
For year 1 payment is 0

interest rate= finance cost
bf= lease liability

Question 5

How do you work out NCL and CL from lease liability table

Answer 5

Payments in arrears= CF year 1 is total liability, CF year 2 is NCL and the difference is CL

Payments in advance= in table draw a line after payment. Final year payment is CL and balance is NCL. First CF amount is total liability

Question 6

How do you treat depreciation of a lease?

Answer 6

Shorter of lease term and useful life

recognised by lessee (owner)