Exam 10: Accounting for Leases

What characteristic(s)of land means that the lessee does not normally receive substantially all of the risks and rewards incidental to ownership (in which case making a lease of land an operating lease)?

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 Cobalt's books on 1 July 2013 and 30 June 2014 (rounded to the nearest euro)?

Explain what is meant by a 'direct finance' lease,and how such leases should be accounted under IAS 17.

The following journal entry,in the books of Lessee Pty Plc,records the entry for the depreciation expense at 30 June 2014.The lease term is of five years duration.Which of the following statements is correct? 30 June 2014 Dr Lease depreciation expense 103274 Accumulated depreciation-leased asset 103274 (to record depreciation expense [(£739,648 - £120,000)/6]