FR IFRS 16 -Lease

IFRS 16 Leases requires a lessee to recognise a right-of-use asset initially at cost.

Which TWO of the following amounts will be included in the initial cost?

• 1. The amount of the lease liability

• 1. Total interest expense over the period of the lease

• 1. Initial direct costs incurred by the lessor

• 1. Estimated costs of dismantling the asset at the end of the lease term

Acor leases a new machine. The interest rate implicit in the lease is 13% per annum. The initial amount recognised for the right-of-use asset is $1,750,000. The lease is for four years and Acor is required to make four annual payments of $520,000, with the first payment due on commencement of the lease agreement.

Acor’s policy is to depreciate similar machinery over five years on the straight line basis.

What is the correct total expense to profit or loss for the first year of the lease?

• 1. $509,900

• 1. $577,500

• 1. $597,400

• 1. $665,000

Z entered into a lease agreement on 1 November 20X2. The lease was for five years, the present value of the lease liability was $45,000 and the interest rate implicit in the lease was 7%. The annual payment was $10,975 in arrears.

What is the non-current lease liability as at 31 October 20X3?

• 1. $27,212

• 1. $28,802

• 1. $29,350

• 1. $37,175

During the year ended 30 September 20X4 Hyper entered into two lease transactions:

On 1 October 20X3, a payment of $90,000 being the first of five equal annual payments of a lease for an item of plant. The lease has an implicit interest rate of 10% and the carrying amount of the ROU asset and the present value of the lease liability were both initially measured at $340,000.

On 1 January 20X4, a payment of $18,000 for an eight-month lease of an item of excavation equipment.

What total expense should be recognised in Hyper’s statement of profit or loss for the year ended 30 September 20X4 in respect of the above transactions?

• 1. $108,000

• 1. $111,000

• 1. $106,500

• 1. $115,500

Blue Co entered into a four-year lease agreement on 1 January 20X0. It required payments of $19,000 to be made annually in arrears. The interest rate implicit in the lease is 10% and the present value of the lease payments at the inception of the lease is $60,230. As at 31 December 20X0, only the first instalment has been recognised as an expense in the in the financial statements.

What is the effect of the incorrect treatment on Blue Co’s profit for the year ended 31 December 20X0?

• 1. Overstated by $2,080

• 1. Understated by $2,080

• 1. Overstated by $3,943

• 1. Understated by $3,943

Jetsam Co entered into a lease for an item of plant on 1 April 20X0 which required payments of $15,000 to be made annually in arrears. The present value of the lease payments was estimated to be $100,650 at the inception of the lease and the rate of interest implicit in the lease was 8%. Both the lease term and the plant’s estimated useful life was ten years.

What is the total amount that should be charged to profit or loss in respect of the lease agreement for the year ended 31 December 20X0?

• 1. $6,039

• 1. $11,250

• 1. $13,588

• 1. $18,802

Cornet Co entered into an eight year lease agreement on 1 July 20X4. The lease requires annual payments of $750,000 in arrears. The present value of the lease payments at 1 July 20X4, discounted at a rate of 6% is $4,657,500. Additionally Cornet Co paid directly attributable costs of $37,500 on 1 July 20X4.

What is the total expense to the statement of profit or loss for the year ended 30 June 20X5?

• 1. $279,450

• 1. $586,875

• 1. $866,325

• 1. $1,029,450

Alpha enters into a lease with Omega of an aircraft which had a fair value of $240,000 at the inception of the lease. The lease terms require Alpha to pay 10 annual rentals of $36,000 in arrears. Alpha is wholly responsible for the maintenance of the aircraft which has a useful life of approximately 15 years.

The present value of the 10 annual rentals of $36,000 discounted at the interest rate implicit in the lease is $220,000.

Applying the requirements of IFRS 16 Leases to this agreement what is the increase in Alpha’s non-current assets?

• 1. $0

• 1. $220,000

• 1. $240,000

• 1. $360,000

Which of the following determines that an arrangement constitutes a lease?

• 1. The supplier can at their discretion substitute an identical asset

• 1. The main terms and conditions of the contract are in writing

• 1. The customer has the right to obtain substantially all economic benefits from use of the asset and direct its use

• 1. Ownership is not transferred at the end of the contractual term

The amounts of which of the following, if relevant, are included in the initial measurement of a right-of-use asset?

1) The lease liability initially recognised

2) Any deposits paid on or before the commencement of the lease

3)  Direct costs incurred by the lessor

4)  Any incentives received by the lessee

• 1. 1 only

• 1. 1 and 4 only

• 1. 1, 2 and 4 only

• 1. 1, 2, 3 and 4