16/5

Owl leases an asset with an estimated useful life of 6 years for an initial period of 5 years, and an optional secondary period of 2 years during which a nominal rental will be payable. The present value of the initial period lease payments is $87,000. 

What will be the carrying amount of the right‐of‐use asset in Owl's statement of financial position at the end of the second year of the lease? 

Answer explanation

The correct answer is $58,000

The asset would initially be capitalised at $87,000. This is then depreciated over six years, being the shorter of the useful life and the lease term (including any secondary period).   

This would give a depreciation expense of $14,500 a year. After two years, accumulated depreciation would be $29,000 and therefore the carrying amount would be $58,000.

On 1 October 20X3, Fresco acquired an item of plant under a five‐year lease agreement. The agreement had an implicit interest rate of 10% and required annual rentals of $6 million to be paid on 30 September each year for five years. The present value of the annual rental payments was $23 million. 

What would be the current lease liability in Fresco’s statement of financial position as at 30 September 20X4?

A $19,300,000 

B $4,070,000 

C $5,000,000 

D $3,850,000

• A

• B

• C

• D

Answer explanation

The correct answer is B

Which of the following would not be included within the initial cost of a right‐of‐use asset?

A Installation cost of the asset 

B Estimated cost of dismantling the asset at the end of the lease period 

C Payments made to the lessor before commencement of the lease 

D   Total lease rentals payable under the lease agreement

• A

• B

• C

• D

Answer explanation

The correct answer is D

The value recognised in respect of the lease payments will be the present value of future lease payments rather than the total value.

On 1 January 20X4, Stark entered into a sale and leaseback of its property. When it was sold, the asset had a carrying amount of $6 million and a remaining life of 10 years. Stark sold the asset for $7 million and leased it back on a 10 year lease, paying $1 million on 31 December each year. The lease carried an implicit interest rate of 7%. 

What is the total expense that should be recorded in the statement of profit or loss for the year ended 31 December 20X4?

$________________ ,000

Answer explanation

The correct answer is $1,090

ABC purchased 10,000 shares on 1 September 20X4, making the election to use the alternative treatment under IFRS 9 Financial Instruments. The shares cost $3.50 each. Transaction costs associated with the purchase were $500. At 31 December 20X4, the shares are trading at $4.50 each. 

What is the gain to be recognised on these shares for the year ended 31 December 20X4? $____________

Answer explanation

The correct answer is $9,500 

The investment should be classified as fair value through other comprehensive income. As such, they will initially be valued inclusive of transaction costs. 

Therefore, the initial value is 10,000 × $3.50 = $35,000 + $500 = $35,500. 

At year‐end, these will be revalued to fair value of $4.50 each, therefore 10,000 × $4.50 = $45,000. The gain is therefore $45,000 – $35,500 = $9,500.