Question 1

In a lease arrangement that is classified by the lessee as an operating lease,the lease payment should be:

Accepted Answer

A) allocated between depreciation expense and interest expense. 
B) allocated between the reduction of liability for leased assets and interest expense. 
C) recognised as a rental expense. 
D) recognised as an interest expense. 
A) allocated between depreciation expense and interest expense. 
B) allocated between the reduction of liability for leased assets and interest expense. 
C) recognised as a rental expense. 
D) recognised as an interest expense. C

Question 2

Medusa Plc enters into a non-cancellable 10-year lease with Lennox Plc on 1 July 2013.The lease is for an item of equipment that at the inception of the lease has a fair value of £322 572 (the amount that Medusa paid for the asset on 1 July 2013).The equipment is expected to have a useful life of 12 years and the lease term is for 10 years.The lease contract includes a bargain purchase option of £4000 that Lennox Plc will be able to exercise at the end of the 10-year lease.The lease payments will be made on 30 June each year,beginning 30 June 2014.The payments are to be £55 000 each year with £5000 of this being for executory costs to cover maintenance of the equipment.The maintenance will be carried out annually.The interest rate implicit in the lease is 9%.What are the entries in the books of Medusa Plc for 1 July 2013 and 30 June 2014 (round amounts to the nearest pound)?

Accepted Answer

A)  01 July 2013
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Lease receivable } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline
\end{array}$

$30 \text { June } 2014$
$\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Cash } & 50000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 29032 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 20968 \
\hline \mathrm{Dr} & \text { Lease receivable } & 5000 & \
\hline \mathrm{Cr} & \text { Executory expense recoupment } & & 5000 \
\hline
\end{array}$ 
B)  01 July 2013
$\begin{array}{|r|l|r|r|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 320883 & \
\hline \mathrm{Dr} & \text { Loss on lease agreement } & 1689 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572 \
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 55000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 28879 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 26121 \
\hline
\end{array}$ 
C)  01 July 2013
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 272572 & \
\hline \mathrm{Dr} & \text { Deferred executory costs } & 50000 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572\
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Cash } & 50000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 24531 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 25469 \
\hline & & & \
\hline \mathrm{Dr} & \text { Cash } & 5000 & \
\hline \mathrm{Cr} & \text { Deferred executory costs } & & 5000 \
\hline
\end{array}$ 
D)  01 July 2013
$\begin{array}{|c|l|l|l|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 322572 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572 \
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|c|l|l|l|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 322572 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572 \
\hline
\end{array}$ 
A)  01 July 2013
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Lease receivable } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline
\end{array}$

$30 \text { June } 2014$
$\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Cash } & 50000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 29032 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 20968 \
\hline \mathrm{Dr} & \text { Lease receivable } & 5000 & \
\hline \mathrm{Cr} & \text { Executory expense recoupment } & & 5000 \
\hline
\end{array}$ 
B)  01 July 2013
$\begin{array}{|r|l|r|r|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 320883 & \
\hline \mathrm{Dr} & \text { Loss on lease agreement } & 1689 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572 \
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 55000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 28879 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 26121 \
\hline
\end{array}$ 
C)  01 July 2013
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 272572 & \
\hline \mathrm{Dr} & \text { Deferred executory costs } & 50000 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572\
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Cash } & 50000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 24531 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 25469 \
\hline & & & \
\hline \mathrm{Dr} & \text { Cash } & 5000 & \
\hline \mathrm{Cr} & \text { Deferred executory costs } & & 5000 \
\hline
\end{array}$ 
D)  01 July 2013
$\begin{array}{|c|l|l|l|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 322572 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572 \
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|c|l|l|l|}
\hline \mathrm{Dr} & \text { Equipment } & 322572 & \
\hline \mathrm{Cr} & \text { Cash } & & 322572 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 322572 & \
\hline \mathrm{Cr} & \text { Equipment } & & 322572 \
\hline
\end{array}$ D

Question 3

Johnson Ltd enters into a lease agreement with Peterson Ltd under the following conditions: $$\begin{array} { | l | r | l | } 
\hline \text { Duration of lease } & 10 \text { years } & \
\hline \text { Life of leased asset } & 12 \text { years } & \
\hline \text { Unguaranteed residual } & \$ 8,000 & \
\hline \text { Lease payment } & \$ 6,500 & \text { at lease inception } \
\hline \text { Annual lease payments (in arrears) } & \$ 7,000 & \text { per year (10 payments) } \
\hline
\end{array}$$ The lease may be cancelled only with the permission of the lessor.If the rate of interest implicit in the lease is 10%,what is the fair value of the asset at the inception of the lease,and is the lease a finance or operating lease?

Accepted Answer

A) $56 745, finance lease 
B) $52 596, operating lease 
C) $56 745, operating lease 
D) $52 596, finance lease 
A) $56 745, finance lease 
B) $52 596, operating lease 
C) $56 745, operating lease 
D) $52 596, finance lease D

Question 4

Quaid Ltd entered into a lease agreement on 1 July 2013 to lease equipment on the following terms: $$\begin{array} { | l | r | l | } 
\hline \text { Duration of lease } & 3 \text { years } & \
\hline \text { Useful life of leased asset } & 9 \text { years } & \
\hline \text { Lease payments (in arrears) } & \$ 4,000 & \begin{array} { l } 
\text { per year (3 payments) } \
\text { due 30 June }
\end{array} \
\hline
\end{array}$$ The interest rate implicit in the lease is 8% and the fair value of the leased asset is $24 987.The lease is cancellable if the lessee immediately enters into a further lease for the same or equivalent asset.The economic benefits provided by the lease asset are expected to be consumed evenly over its life.The lease payment has not been made on 30 June before the adjusting entries are made for the year end.What are the appropriate entries in the books of the lessee at the end of the reporting period 30 June 2014?

Accepted Answer

A)  $$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Rental expense-equipment } & 4000 & \
\hline \mathrm { Cr } & \text { Accrued rental } & & 4000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Rental expense-equipment } & 4000 & \
\hline \mathrm { Cr } & \text { Cash } & & 4000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Lease amortisation expense } & 3436 & \
\hline \mathrm { Cr } & \text { Accumulated amortisation } & & 3436 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 825 & \
\hline \mathrm { Dr } & \text { Lease liability } & 3175 & \
\hline \mathrm { Cr } & \text { Accrued expenses } & & 4000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Lease amortisation expense } & 3436 & \
\hline \mathrm { Cr } & \text { Accumulated amortisation } & & 3436 \
\hline
\end{array}$$ 
D)  $\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Interest expense } & 1999 & \
\hline \mathrm{Dr} & \text { Lease liability } & 2001 & \
\hline \mathrm{Cr} & \text { Cash } & & 4000 \
\hline\\hline \mathrm{Dr} & \text { Lease amortisation expense } & 3436 & \
\hline \mathrm{Cr} & \text { Accumulated amortisation } & & 3436 \
\hline
\end{array}$ 
A)  $$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Rental expense-equipment } & 4000 & \
\hline \mathrm { Cr } & \text { Accrued rental } & & 4000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Rental expense-equipment } & 4000 & \
\hline \mathrm { Cr } & \text { Cash } & & 4000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Lease amortisation expense } & 3436 & \
\hline \mathrm { Cr } & \text { Accumulated amortisation } & & 3436 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Interest expense } & 825 & \
\hline \mathrm { Dr } & \text { Lease liability } & 3175 & \
\hline \mathrm { Cr } & \text { Accrued expenses } & & 4000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Lease amortisation expense } & 3436 & \
\hline \mathrm { Cr } & \text { Accumulated amortisation } & & 3436 \
\hline
\end{array}$$ 
D)  $\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Interest expense } & 1999 & \
\hline \mathrm{Dr} & \text { Lease liability } & 2001 & \
\hline \mathrm{Cr} & \text { Cash } & & 4000 \
\hline\\hline \mathrm{Dr} & \text { Lease amortisation expense } & 3436 & \
\hline \mathrm{Cr} & \text { Accumulated amortisation } & & 3436 \
\hline
\end{array}$

Question 5

In determining if the risk and rewards of ownership have been transferred,IAS 17 states the following would indicate a finance lease is in effect:

Accepted Answer

A) Ownership of the assets transfers at the end of the lease term for a variable payment equal to its then fair value. 
B) Contingent rents exist. 
C) The lease is non-cancellable by the lessor. 
D) All of the given answers are correct. 
A) Ownership of the assets transfers at the end of the lease term for a variable payment equal to its then fair value. 
B) Contingent rents exist. 
C) The lease is non-cancellable by the lessor. 
D) All of the given answers are correct.

Question 6

A finance lease is one in which substantially all the risks and benefits of ownership pass to the lessee.

Accepted Answer

A) True 
 B)False

Question 7

Describe how a lessee would account for the depreciation (amortisation)of a leased asset.

Accepted Answer

A leased asset should be depreciated usi

Question 8

Discuss the issues raised by the IASB and the US FASB on the accounting treatment for operating leases and how this arrangement gives rise to an asset and a liability to the lessee at inception of the lease.

Accepted Answer

A lessee and a lessor shall measure leas

Question 9

A leased asset classified as a finance lease is not subject to depreciation or amortisation.

Accepted Answer

A) True 
 B)False

Question 10

If a lease transfers ownership of the property to the lessee,or contains a bargain purchase option,then this is consistent with the lease being an operating lease.

Accepted Answer

A) True 
 B)False

Question 11

In a sale and leaseback transaction,if the risks and rewards incidental to ownership effectively pass to the lessor,this arrangement is classified as a finance lease.

Accepted Answer

A) True 
 B)False

Question 12

IAS 17 defines the benefits of ownership to include:

Accepted Answer

A) those obtainable from the insurance claims associated with it. 
B) those obtainable from gains in the realisable value of the asset. 
C) those obtainable from the profitable use of the asset. 
D) those obtainable from gains in the realisable value of the asset and those obtainable from the profitable use of the asset. 
A) those obtainable from the insurance claims associated with it. 
B) those obtainable from gains in the realisable value of the asset. 
C) those obtainable from the profitable use of the asset. 
D) those obtainable from gains in the realisable value of the asset and those obtainable from the profitable use of the asset.

Question 13

Kingslake Ltd signed a non-cancellable lease contract on 1 January 2012 for a machine that requires 5 annual payments of $200 000 at the start of each year.On the last annual payment,ownership will transfer from the lessor to Kingslake Ltd.The fair value of the asset if paid in cash is $75964.The following information is also available: $$\begin{array} { | c | r | r | r | } 
\hline \text { Period } & \text { Present value of an annuity of } \$ 1 \
\hline & 10 \% & 12 & 16 \
\hline 1 & 0.9091 & 0.8929 & 0.8621 \
\hline 2 & 1.7355 & 1.6091 & 1.6052 \
\hline 3 & 2.4869 & 2.4018 & 2.2459 \
\hline 4 & 3.1699 & 3.0373 & 2.7982 \
\hline 5 & 3.7908 & 3.6548 & 3.2743 \
\hline
\end{array}$$ What is the implicit rate of this lease arrangement in accordance with IAS 17?

Accepted Answer

A) 10% 
B) 12% 
C) 16% 
D) Between 10% and 12% 
A) 10% 
B) 12% 
C) 16% 
D) Between 10% and 12%

Question 14

Alpine Ltd signed a 10-year non-cancellable lease with Mt Buller Ltd for the use of high-tech equipment.No bargain purchase option is provided in the lease contract.The following information is available: $$\begin{array} { | l | r | } 
\hline \text { Fair value of equipment } & \$ 200000 \
\hline \text { Economic life of the equipment } & 12 \text { years } \
\hline \text { Minimum lease payments } & \$ 120000 \
\hline \text { Executory costs } & \$ 5,000 \
\hline
\end{array}$$ What is the amount to be recorded as an asset and a liability in the books of the lessee that is in accordance with IAS 17 Leases?

Accepted Answer

A) $0 
B) $120 000 
C) $125 000 
D) $200 000 
A) $0 
B) $120 000 
C) $125 000 
D) $200 000

Question 15

The following is an extract from a lease payment schedule for Lessee Pty Limited.Assuming Lessee Pty Limited uses the current/non-current dichotomy to disclose liabilities,what are the amounts of (a)current liabilities; and (b)non-current liabilities,relating to this lease,disclosed by Lessee Pty Limited at 30 June 2012? $\begin{array}{|c|c|c|c|}
\hline \text { Date } & \begin{array}{c}
\text { Lease } \
\text { payment }
\end{array} & \begin{array}{c}
\text { Interest } \
\text { expense }
\end{array} & \begin{array}{c}
\text { Present value of } \
\text { lease liability }
\end{array} \
\hline \text { 01 July 2009 } & & & 21506 \
\hline \text { 30 June 2010 } & 3500 & 2151 & ? \
\hline
\end{array}$

Accepted Answer

A) (a) current 2601; (b) non-current 26 012 
B) (a) current 1976; (b) non-current 13 268 
C) (a) current 1796; (b) non-current 15 243 
D) (a) current 1633; (b) non-current 17 039 
A) (a) current 2601; (b) non-current 26 012 
B) (a) current 1976; (b) non-current 13 268 
C) (a) current 1796; (b) non-current 15 243 
D) (a) current 1633; (b) non-current 17 039

Question 16

Paragraph 47 of IAS 17 requires that for a finance lease,the lessor must disclose:

Accepted Answer

A) the unguaranteed residual values accruing to the lessor. 
B) earned finance income. 
C) contingent rents recognised as expenses in the period. 
D) the guaranteed residual values accruing to the lessor and unearned finance income. 
A) the unguaranteed residual values accruing to the lessor. 
B) earned finance income. 
C) contingent rents recognised as expenses in the period. 
D) the guaranteed residual values accruing to the lessor and unearned finance income.

Question 17

For a lessee entering into a finance lease,initial direct costs are:

Accepted Answer

A) expensed immediately. 
B) expensed at the end of the lease term. 
C) capitalised as part of the lease receivable. 
D) capitalised as part of the cost of the leased asset. 
A) expensed immediately. 
B) expensed at the end of the lease term. 
C) capitalised as part of the lease receivable. 
D) capitalised as part of the cost of the leased asset.

Question 18

Cobalt Plc owns an item of machinery that has a cost of €700 000 and accumulated depreciation of €200 000 as at 1 July 2013.On that date the machine is sold to Blue Plc for €533 493,and then leased back over 8 years (the remaining life of the machine).The lease is non-cancellable.The lease payments are €100 000 per annum,payable in arrears on 30 June each year.The interest rate implicit in the lease is 10% and the economic benefits of the asset are expected to be realised evenly over its life.What are the entries to record the transactions in Blue's books on 1 July 2013 and 30 June 2014 (rounded to the nearest euro)?

Accepted Answer

A)  01 July 2013
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Machine } & 533493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Lease payable } & & 533493 \
\hline
\end{array}$

$30 \text { June } 2014$
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 53349 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 46651 \
\hline & & & \
\hline \mathrm{Dr} & \text { Depreciation machine } & 66687 & \
\hline \mathrm{Cr} & \text { Accumulated depreciation machine } & & 66687 \
\hline
\end{array}$ 
B)  01 July 2013
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Machine } & 533493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Machine } & & 533493 \
\hline
\end{array}$

$30 \text { June } 2014$
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 53349 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 46651 \
\hline
\end{array}$ 
C)  01 July 2013
$\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Machine } & 500000 & \
\hline \mathrm{Dr} & \text { Loss on machine } & 33493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Machine } & & 500000 \
\hline \mathrm{Cr} & \text { Loss on machine } & & 33493 \
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 100000 \
\hline
\end{array}$ 
D)  01 July 2013
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Machine } & 533493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Machine } & & 533493 \
\hline
\end{array}$

$\text { 30 June } 2014$ 
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Lease revenue } & & 100000 \
\hline
\end{array}$ 
A)  01 July 2013
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Machine } & 533493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Lease payable } & & 533493 \
\hline
\end{array}$

$30 \text { June } 2014$
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 53349 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 46651 \
\hline & & & \
\hline \mathrm{Dr} & \text { Depreciation machine } & 66687 & \
\hline \mathrm{Cr} & \text { Accumulated depreciation machine } & & 66687 \
\hline
\end{array}$ 
B)  01 July 2013
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Machine } & 533493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Machine } & & 533493 \
\hline
\end{array}$

$30 \text { June } 2014$
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 53349 \
\hline \mathrm{Cr} & \text { Lease receivable } & & 46651 \
\hline
\end{array}$ 
C)  01 July 2013
$\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Machine } & 500000 & \
\hline \mathrm{Dr} & \text { Loss on machine } & 33493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Machine } & & 500000 \
\hline \mathrm{Cr} & \text { Loss on machine } & & 33493 \
\hline
\end{array}$

$30 \text { June } 2014$ 
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Interest revenue } & & 100000 \
\hline
\end{array}$ 
D)  01 July 2013
$\begin{array}{|c|l|c|c|}
\hline \mathrm{Dr} & \text { Machine } & 533493 & \
\hline \mathrm{Cr} & \text { Cash } & & 533493 \
\hline & & & \
\hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \
\hline \mathrm{Cr} & \text { Machine } & & 533493 \
\hline
\end{array}$

$\text { 30 June } 2014$ 
$\begin{array}{|l|l|l|l|}
\hline \mathrm{Dr} & \text { Cash } & 100000 & \
\hline \mathrm{Cr} & \text { Lease revenue } & & 100000 \
\hline
\end{array}$

Question 19

From the point of view of the lessor,any lease rentals that are a recovery of executory costs should be treated as:

Accepted Answer

A) a reduction in the lease receivable in the period in which they are received. 
B) a reduction in interest revenue in the period that the costs are incurred. 
C) an increase in unearned revenue in the period in which the lease rental is received. 
D) revenue in the periods in which the related costs are incurred. 
A) a reduction in the lease receivable in the period in which they are received. 
B) a reduction in interest revenue in the period that the costs are incurred. 
C) an increase in unearned revenue in the period in which the lease rental is received. 
D) revenue in the periods in which the related costs are incurred.

Question 20

Explain the accounting treatment for a lease arrangement involving both land and building.

Accepted Answer

As land is an asset that normally has an

In a lease arrangement that is classified by the lessee as an operating lease,the lease payment should be:

In determining if the risk and rewards of ownership have been transferred,IAS 17 states the following would indicate a finance lease is in effect:

A finance lease is one in which substantially all the risks and benefits of ownership pass to the lessee.

Describe how a lessee would account for the depreciation (amortisation)of a leased asset.

Discuss the issues raised by the IASB and the US FASB on the accounting treatment for operating leases and how this arrangement gives rise to an asset and a liability to the lessee at inception of the lease.

A leased asset classified as a finance lease is not subject to depreciation or amortisation.

If a lease transfers ownership of the property to the lessee,or contains a bargain purchase option,then this is consistent with the lease being an operating lease.

In a sale and leaseback transaction,if the risks and rewards incidental to ownership effectively pass to the lessor,this arrangement is classified as a finance lease.

IAS 17 defines the benefits of ownership to include:

Paragraph 47 of IAS 17 requires that for a finance lease,the lessor must disclose:

For a lessee entering into a finance lease,initial direct costs are:

From the point of view of the lessor,any lease rentals that are a recovery of executory costs should be treated as:

Explain the accounting treatment for a lease arrangement involving both land and building.

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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Exam 10: Accounting for Leases

In a lease arrangement that is classified by the lessee as an operating lease,the lease payment should be:

In determining if the risk and rewards of ownership have been transferred,IAS 17 states the following would indicate a finance lease is in effect:

A finance lease is one in which substantially all the risks and benefits of ownership pass to the lessee.

Describe how a lessee would account for the depreciation (amortisation)of a leased asset.

Discuss the issues raised by the IASB and the US FASB on the accounting treatment for operating leases and how this arrangement gives rise to an asset and a liability to the lessee at inception of the lease.

A leased asset classified as a finance lease is not subject to depreciation or amortisation.

If a lease transfers ownership of the property to the lessee,or contains a bargain purchase option,then this is consistent with the lease being an operating lease.

In a sale and leaseback transaction,if the risks and rewards incidental to ownership effectively pass to the lessor,this arrangement is classified as a finance lease.

IAS 17 defines the benefits of ownership to include:

Paragraph 47 of IAS 17 requires that for a finance lease,the lessor must disclose:

For a lessee entering into a finance lease,initial direct costs are:

From the point of view of the lessor,any lease rentals that are a recovery of executory costs should be treated as:

Explain the accounting treatment for a lease arrangement involving both land and building.

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

Filters