W5 - Leased assets

Question 1

What is an asset?

Answer 1

A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Question 2

What are the two main agents in a lease?

Answer 2

Co A
- Legally owns the asset
- LESSOR

Co B
- Use the asset
- LESSEE

Question 3

What changes did IAS 16 bring in terms of accounting for leases?

Answer 3

BEFORE: Leases recognised as operating cost/Finance cost
AFTER: Recognised in asset and liabilities

Question 4

What is a lease?

Answer 4

A contract, or part of a contract, that conveys the right to use (control) an asset ( an underlying asset) for a period of time, in exchange for consideration

Question 5

What is an underlying asset?

Answer 5

An asset that is the subject of a lease, for which the right to use that asset has been provided by a lessor to a lesse

Question 6

How do you account for leases

Answer 6

At the commencement date, a right-of-use asset is recognised alongside a lease liability representing the company’s obligation to make lease payments.

The initial right-of-use asset is recognised at cost, including: Deposit made before/at the start of the lease and any Initial direct cost

The initial measurement of the lease liability is measured at the present value of future lease payments, including any expected payments at the end of the lease, discounted at the interest rate implicit in the lease.

Question 7

Numerical account for lease:

• Depreciation
• Interest
• Liability (Current / NCA)

Answer 7

Depreciation is NPV of asset over its useful life / lease term

Interest is Interest%*Liability

Liability is NPV+Interest-Nominal value of cash installements

Current liability is liability n+1 - liability /// NCL is liability - CL

Question 8

DR / CR account for lease

Answer 8

Interest :
DR finance ccost
CR Lease liability

cash installements
DR Lease liability
CR bank