Module 8

Question 1

What are the journal entries when an entity records a loan is received?

Answer 1

Dr Bank

Cr Loan creditor

Question 2

What are the journal entries when an entity records a interest accrued on a loan?

Answer 2

Dr P&L -interest expense

Cr Loan creditor

Question 3

What are the journal entries when an entity pays nominal interest?

Answer 3

Dr Loan creditor

Cr Bank

Question 4

What is a lease?

Answer 4

Involve using PPE that another entity owns and paying to use in instalments of capital and interest. they don’t own, instead they have control. This is whats known as a right of use asset.

Question 5

what are the journal entries when an entity is able to use a leases asset?

Answer 5

Dr Right of use asset -cost

Cr Lease creditor

Question 6

What are the journal entries when an instalment is paid on a lease?

Answer 6

Dr P&L -interest expense
Dr Lease creditor
Cr Bank

Question 7

How do you present current and long term lease creditors on the balance sheet?

Answer 7

Separately!

Question 8

How should a leased asset be depreciated?

Answer 8

over the shorter of its useful economic life and the lease term. (i.e. what gives the larger depreciation charge)

Question 9

What are the two exemptions for leases?

Answer 9

• short term (less than 12 months)

- low value assets

Question 10

what is the accounting for the two lease exemptions?

Answer 10

straight line charge through p&l, payment from bank, corresponding accrual or prepayment.

Dr p&l -lease charge 
Dr Prepayment (or Cr Accruals)
    Cr Bank