[THEORY] LESSEE ACCOUNTING

Question 1

Under IFRS, a lessee is required to recognize

a. Right of use asset and lease liability
b. Right of use asset but not lease liability
c. Lease liability but not right of use asset
d. Neither right of use asset nor lease liability

Answer 1

a. Right of use asset and lease liability

Question 2

The lessee may apply the operating lease model under what condition?

a. Short-term lease
b Low value lease
c. Both short-term lease and low value lease
d. Under all circumstances

Answer 2

c. Both short-term lease and low value lease

Question 3

A short-term lease is defined as

a. Twelve months or less
b. Six months or less
c. Twelve-month lease with a purchase option
d. Two-year lease with option to terminate

Answer 3

a. Twelve months or less

Question 4

Which statement is true about low value lease?

a. The value of an underlying asset is based on the value of the asset when new regardless of the age of the asset.
b. The term of a low value lease may be more than twelve months.
c. An underlying asset does not qualify as low value lease if the nature of the asset is such that the asset is typically not of low value when new.
d. All of these statements are true about low value lease.

Answer 4

d. All of these statements are true about low value lease.

Question 5

A right of use asset is initially measured at

a. Cost
b. Fair value
c. Current cost
d. Present value of expected cash inflows

Answer 5

a. Cost

Question 6

The cost of right of use asset comprises all, except

a. The present value of lease payments
b. Lease payments made to lessor on or before commencement date
c. Initial direct cost incurred by lessee
d. Leasehold improvement

Answer 6

d. Leasehold improvement

Question 7

The right of use asset is reported as

a. Noncurrent as separate line item
b. Property, plant and equipment
c. Intangible asset
d. Investment property

Answer 7

a. Noncurrent as separate line item

Question 8

A lessee with a lease containing a purchase option that is reasonably certain to be exercised should depreciate the right of use asset over

a. Useful life of the asset
b. Lease term
c. Useful life of the asset or the lease term, whichever is shorter
d. Useful life of the asset or the lease term, whichever is longer

Answer 8

a. Useful life of the asset

Question 9

A lease liability is measured at

a. The absolute amount of lease payments
b. The present value of lease payments
c. The present value of fixed lease payments
d. The fair value of the underlying asset

Answer 9

b. The present value of lease payments

Question 10

The lease payments include all of the following, except

a. Periodic rentals
b. Termination penalty if the lease term reflects the termination option
c. Exercise price of a purchase option that is not reasonably certain to be exercised
d. Residual value guarantee of the lessee

Answer 10

c. Exercise price of a purchase option that is not reasonably certain to be exercised

Question 11

Which is not included in lease payments?

a. Any payment required by a purchase option that is reasonably certain to be exercised
b. Cost for services and taxes paid by lessee
c. Required payments over the lease term
d. Amount guaranteed by a party related to the lessee

Answer 11

b. Cost for services and taxes paid by lessee

Question 12

Which is not part of the lease payments?

a. The rental payments called for by the lease
b. Any residual value guarantee of the lessee
c. Any residual value at the end of the lease term
d. Any payment the lessee must make under a purchase option that is reasonably certain to be exercised

Answer 12

c. Any residual value at the end of the lease term

Question 13

The lease payments include all, except

a. The residual value guarantee
b. The lessee’s obligation to pay executory cost
c. The purchase option reasonably certain to be exercised
d. Any payment the lessee must make upon failure to extend or renew the lease

Answer 13

b. The lessee’s obligation to pay executory cost

Question 14

What is the cost of a right of use asset?

a. The absolute lease payments over the lease term
b. The present value of the lease payments including executory costs discounted at an appropriate rate
c. The present value of the lease payments exclusive of executory costs discounted at an appropriate rate
d. The present value of the fair value of the asset discounted at an appropriate rate

Answer 14

c. The present value of the lease payments exclusive of executory costs discounted at an appropriate rate

Question 15

The carrying amount of the right of use asset would be periodically reduced by

a. Lease payment
b. Portion of the lease payment allocable to the interest
c. Portion of the lease payment allocable to reduction of the lease liability
d. Depreciation of the right of use asset

Answer 15

d. Depreciation of the right of use asset

Question 16

What is the interest rate used when the implicit interestrate cannot be determined?

a. The prime rate
b. The lessor’s published rate
c. The lessee’s average borrowing rate
d. The lessee’s incremental borrowing rate

Answer 16

d. The lessee’s incremental borrowing rate

Question 17

What is the treatment of initial direct cost incurred by the lessee in a finance lease?

a. Added to lease liability
b. Added to carrying amount of the right of use asset
c. Expensed immediately
d. Added to the carrying amount of the right of use asset and lease liability

Answer 17

b. Added to carrying amount of the right of use asset

Question 18

Which statement concerning residual value guarantee is appropriate for the lessee?

a. The asset and related liability should be increased by the absolute amount of the residual value.
b. The asset and related liability should be decreased by the absolute amount of the residual value.
c. The asset and related liability should be decreased by the present value of the residual value.
d. The asset and related liability should be increased by the present value of the residual value.

Answer 18

d. The asset and related liability should be increased by the present value of the residual value.

Question 19

In computing depreciation of a right of use asset under a lease, the lessee should deduct

a. The residual value guarantee and depreciate over the lease term.
c. An unguaranteed residual value and depreciate over the lease term.
c. The residual value guarantee and depreciate over the useful life of the asset.
d. An unguaranteed residual value and depreciate over the useful life of the asset.

Answer 19

a. The residual value guarantee and depreciate over the lease term.

Question 20

If the residual value of underlying asset is greater than the amount guaranteed by the lessee

a. The lessor pays the lessee for the difference.
b. The lessee recognizes a gain at the end of the lease.
c. The lessee has no obligation for the excess fair value.
d. The lessee pays the lessor for the difference.

Answer 20

c. The lessee has no obligation for the excess fair value.

Question 21

The lessee’s lease liability for a finance lease would be periodically reduced by

a. Lease payment plus the depreciation of the asset
b. Lease payment less the depreciation of the asset
c. Lease payment less the portion allocable to interest
d. Lease payment

Answer 21

c. Lease payment less the portion allocable to interest

Question 22

A six-year finance lease entered into on December 31 of the current year specified equal annual lease payments due on December 31 of each year. The first annual lease payment paid on December 31 of the current year consists of which of the following?

a. Interest expense
b. Lease liability
c. Both interest expense and lease liability
d. Neither interest expense nor lease liability

Answer 22

b. Lease liability

Question 23

A six-year finance lease specified equal annual lease payments. The lease payment in the fifth year applicable to the reduction of the lease liability should be

a. Less than in the fourth year
b. More than in the fourth year
c. The same as in the sixth year
d. More than in the sixth year

Answer 23

b. More than in the fourth year

Question 24

A lessee had a ten-year finance lease requiring equal annual payments. The reduction of the lease Lability in the second year should equal

a. The current liability shown for the lease at the end of first year
b. The current liability shown for the lease at the end of second year.
c. The reduction of the lease liability in the first year.
d. One-tenth of the original lease liability.

Answer 24

a. The current liability shown for the lease at the end of first year