Question 1

Which of the following is included within the scope of IFRS 16 Leases?

Accepted Answer

A)  lease agreements for motion picture films; 
B)  lease agreements to explore for minerals; 
C)  lease agreements for biological assets; 
D)  lease agreement for an oil refinery. 
A)  lease agreements for motion picture films; 
B)  lease agreements to explore for minerals; 
C)  lease agreements for biological assets; 
D)  lease agreement for an oil refinery. D

Question 2

Which of the following is an appropriate journal entry for the initial recognition by a lessee of a finance lease arrangement?

Accepted Answer

A)  DR Leased asset CR Bank loan; 
B)  DR Cash CR Leased asset; 
C)  DR Lease liability CR Leased asset; 
D)  DR Leased asset CR Lease liability. 
A)  DR Leased asset CR Bank loan; 
B)  DR Cash CR Leased asset; 
C)  DR Lease liability CR Leased asset; 
D)  DR Leased asset CR Lease liability. D

Question 3

The following information relates to questions 
Adam Limited and Davies Limited enter into a finance lease agreement with the following terms:

?	lease term is 3 years
?	estimated economic life of the leased asset is 6 years
?	3 × annual rental payments of £23 000 each payment is one year in arrears
?	residual value at the end of the lease term is not guaranteed by the lessee
?	interest rate implicit in the lease is 7%.

-On inception date, the present value of the minimum lease payments is:

Accepted Answer

A)  £60 359; 
B)  £64 170; 
C)  £64 584; 
D)  £69 000. 
A)  £60 359; 
B)  £64 170; 
C)  £64 584; 
D)  £69 000. A

Question 4

Which of the following is an appropriate journal entry for the initial recognition by a lessor of a finance lease arrangement?

Accepted Answer

A)  DR Lease receivable CR Asset; 
B)  DR Lease receivable CR Lease liability; 
C)  DR Leased asset: CR Cash/Trade payables; 
D)  DR Leased asset CR Cash. 
A)  DR Lease receivable CR Asset; 
B)  DR Lease receivable CR Lease liability; 
C)  DR Leased asset: CR Cash/Trade payables; 
D)  DR Leased asset CR Cash.

Question 5

Which of the following is NOT one of the situations provided in IFRS 16 Leases in relation to the classification of leases as finance leases?

Accepted Answer

A)  Losses from the fluctuation of the fair value of the residual accrue to the lessee; 
B)  Leased assets are of a specialised nature; 
C)  The lessee has provided a guarantee that they will acquire the asset at the end of the lease term; 
D)  The lease is for a major part of the economic life of the asset. 
A)  Losses from the fluctuation of the fair value of the residual accrue to the lessee; 
B)  Leased assets are of a specialised nature; 
C)  The lessee has provided a guarantee that they will acquire the asset at the end of the lease term; 
D)  The lease is for a major part of the economic life of the asset.

Question 6

Which of the following is an appropriate journal entry for the initial recognition by a lessee of an operating lease arrangement?
a. $\quad$DR Leased asset $\quad$$\quad$$\quad$$\quad$CR Lease liability;
b. $\quad$$\mathrm { DR }$ Lease rental expense $\quad$$\mathrm { CR }$ Cash/Trade payables;
c. $\quad$DR Leased asset $\quad$$\quad$$\quad$$\quad$ CR Cash/Trade payables;
d. $\quad$DR Lease asset $\quad$ $\quad$$\quad$$\quad$$\quad$CR Lease interest expense.

Accepted Answer

The answer of Which of the following is an appropriate...

Question 7

If a sale and leaseback transaction results in a finance lease, IFRS 16 Leases provides the following accounting treatment for any excess of sales proceeds over the carrying amount:

Accepted Answer

A)  recognise directly in retained earnings of the seller-lessee; 
B)  immediately recognise as income by the seller-lessee; 
C)  defer and amortise over the lease term; 
D)  include in the capitalised amount of the leased asset. 
A)  recognise directly in retained earnings of the seller-lessee; 
B)  immediately recognise as income by the seller-lessee; 
C)  defer and amortise over the lease term; 
D)  include in the capitalised amount of the leased asset.

Question 8

The minimum lease payment is defined as including all of the following components except:

Accepted Answer

A)  bargain purchase option; 
B)  contingent rentals; 
C)  a guaranteed residual value; 
D)  the lease payments occurring over the lease term. 
A)  bargain purchase option; 
B)  contingent rentals; 
C)  a guaranteed residual value; 
D)  the lease payments occurring over the lease term.

Question 9

Burgess Limited accepts a lease incentive to enter into a 3-year operating lease for a building. The incentive is a cash amount of £5000 received on signing of the lease agreement. The lessee initially records this transaction as follows:

Accepted Answer

A)  DR $\quad$Lease expense $\quad$£5000
CR$\quad$ Cash$\quad$$\quad$£5000 
B) DR $\quad$Incentive from lessor $\quad$£5000
CR $\quad$Cash$\quad$£5000 
C)  DR$\quad$ Incentive to lessee $\quad$£5000
CR $\quad$Rent income$\quad$£5000 
D)  $\begin{array}{l}
\text { DR } \quad \text { Cash }&£5000 \
\text { CR } \quad \text { Lease incentive from lessor }&£5000
\end{array}$ 
A)  DR $\quad$Lease expense $\quad$£5000
CR$\quad$ Cash$\quad$$\quad$£5000 
B) DR $\quad$Incentive from lessor $\quad$£5000
CR $\quad$Cash$\quad$£5000 
C)  DR$\quad$ Incentive to lessee $\quad$£5000
CR $\quad$Rent income$\quad$£5000 
D)  $\begin{array}{l}
\text { DR } \quad \text { Cash }&£5000 \
\text { CR } \quad \text { Lease incentive from lessor }&£5000
\end{array}$

Question 10

A sale and leaseback transaction involves the sale of an asset that is then leased back to the:

Accepted Answer

A)  original owner; 
B)  acquiring entity; 
C)  lessor; 
D)  purchaser. 
A)  original owner; 
B)  acquiring entity; 
C)  lessor; 
D)  purchaser.

Question 11

Under IFRS 16 Leases, lessors are required to account for lease receipts from operating leases as:

Accepted Answer

A)  revenue, on a reducing balance basis over the lease term; 
B)  income, on inception date of the lease; 
C)  income, on a straight-line basis over the lease term; 
D)  revenue, at the end of the lease term. 
A)  revenue, on a reducing balance basis over the lease term; 
B)  income, on inception date of the lease; 
C)  income, on a straight-line basis over the lease term; 
D)  revenue, at the end of the lease term.

Question 12

Which of the following is NOT an example of a risk of ownership of an asset?

Accepted Answer

A)  idle capacity; 
B)  gains on the eventual sale of the asset; 
C)  uninsured damage; 
D)  technical obsolescence. 
A)  idle capacity; 
B)  gains on the eventual sale of the asset; 
C)  uninsured damage; 
D)  technical obsolescence.

Question 13

IFRS 16 Leases deems cancellable leases with which of the following characteristics to be non-cancellable: $$\begin{array} { | l | l | l | l | l | } 
\hline&I&II&III&IV\
\hline \begin{array} { l } 
\text { Leases that can be cancelled upon the occurrence of } \
\text { some remate contingency }
\end{array} & \text { No } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline \begin{array} { l } 
\text { Leases that can be cancelled only with the permission of } \
\text { the lessor }
\end{array} & \text { Yes } & \text { No } & \text { Yes } & \text { Yes } \
\hline \begin{array} { l } 
\text { Leases where the lessee, upon cancellation, is committed } \
\text { to enter into a further lease with the same lessor }
\end{array} & \text { Yes } & \text { Yes } & \text { Yes } & \text { No } \
\hline \begin{array} { l } 
\text { Leases that require the lessee to pay a substantial penalty } \
\text { on cancellation }
\end{array} & \text { Yes } & \text { Yes } & \text { Yes } & \text { No } \
\hline
\end{array}$$

Accepted Answer

A)  I; 
B)  II; 
C)  III; 
D)  IV. 
A)  I; 
B)  II; 
C)  III; 
D)  IV.

Question 14

With respect to operating leases, lessors are required under IFRS 16 Leases to make the following disclosures:
 I Total contingent rents recognised as income in the period
II Future minimum lease payments under individual, cancellable operating leases, separately
III A general description of the lessee's leasing arrangements
IV Future minimum lease payments under non-cancellable operating leases in aggregate.

Accepted Answer

A)  I, II and III only; 
B)  I, III and IV only; 
C)  II and III only; 
D)  I, II and IV only. 
A)  I, II and III only; 
B)  I, III and IV only; 
C)  II and III only; 
D)  I, II and IV only.

Question 15

In relation to finance leases, the following information must be disclosed separately in the financial statements of lessors: 
I Unearned finance income.
II Contingent rents recognised as income in the period.
III The unguaranteed residual values accruing to the benefit of the lessee.
IV The accumulated allowance for uncollectible minimum lease payments receivable.

Accepted Answer

A)  I, II and IV only; 
B)  I, III and IV only; 
C)  II, III and IV only; 
D)  II and IV only. 
A)  I, II and IV only; 
B)  I, III and IV only; 
C)  II, III and IV only; 
D)  II and IV only.

Question 16

The following information relates to questions 
Adam Limited and Davies Limited enter into a finance lease agreement with the following terms:

?	lease term is 3 years
?	estimated economic life of the leased asset is 6 years
?	3 × annual rental payments of £23 000 each payment is one year in arrears
?	residual value at the end of the lease term is not guaranteed by the lessee
?	interest rate implicit in the lease is 7%.

-The journal entry recorded by the lessee when the payment is made at the end of the first year is:

Accepted Answer

A)  $\begin{array} { l l r r } 
\mathrm { Dr } & \text { Interest expense } & 4,225 & \
\mathrm { Dr } & \text { Lease liability } & 18,775 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$ 
B)  $\begin{array} { l l r r } 
\mathrm { Dr } & \text { Lease liability } & 4,225 & \
\mathrm { Dr } & \text { Interest expense } & 18,775 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$ 
C)  $\begin{array} { l l r l } 
\mathrm { Dr } & \text { Interest expense } & 1,610 & \
\mathrm { Dr } & \text { Lease liability } & 21,390 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$ 
D)  $\begin{array} { l l r r } 
\mathrm { Dr } & \text { Lease liability } & 1,610 & \
\mathrm { Dr } & \text { Interest expense } & 21,390 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$ 
A)  $\begin{array} { l l r r } 
\mathrm { Dr } & \text { Interest expense } & 4,225 & \
\mathrm { Dr } & \text { Lease liability } & 18,775 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$ 
B)  $\begin{array} { l l r r } 
\mathrm { Dr } & \text { Lease liability } & 4,225 & \
\mathrm { Dr } & \text { Interest expense } & 18,775 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$ 
C)  $\begin{array} { l l r l } 
\mathrm { Dr } & \text { Interest expense } & 1,610 & \
\mathrm { Dr } & \text { Lease liability } & 21,390 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$ 
D)  $\begin{array} { l l r r } 
\mathrm { Dr } & \text { Lease liability } & 1,610 & \
\mathrm { Dr } & \text { Interest expense } & 21,390 & \
\mathrm { Cr } & \text { Cash } & & 23,000
\end{array}$

Question 17

IFRS 16 Leases requires manufacturer and dealer lessors to recognise selling profit or loss at the:

Accepted Answer

A)  end of the lease; 
B)  systematically recognised over the lease term; 
C)  commencement of the lease; 
D)  50% at commencement of the lease and 50% at the end of the lease. 
A)  end of the lease; 
B)  systematically recognised over the lease term; 
C)  commencement of the lease; 
D)  50% at commencement of the lease and 50% at the end of the lease.

Question 18

The user of a leased asset is referred to as the:

Accepted Answer

A)  vendor; 
B)  purchaser; 
C)  lessor; 
D)  lessee. 
A)  vendor; 
B)  purchaser; 
C)  lessor; 
D)  lessee.

Question 19

On 30 June 2016, Mala Ltd leased a vehicle to Tango Ltd. Mala Ltd had purchased the vehicle on that day for its fair value of €89 721. The lease agreement cost Mala Ltd €1457 to have drawn up and requires Tango to reimburse Mala for annual insurance costs of €1050. The amount recorded as a lease receivable by Mala Ltd at the inception of the lease is:

Accepted Answer

A)  €88 264; 
B)  €89 721; 
C)  €90 771; 
D)  €91 178. 
A)  €88 264; 
B)  €89 721; 
C)  €90 771; 
D)  €91 178.

Question 20

Timely Limited accepts a lease incentive to enter into a 4-year operating lease for equipment. The incentive is cash amounting to £10 000 that will be paid on the date the lease agreement is signed. On inception of the lease, the lessor will record:

Accepted Answer

A) $\begin{array} { l r l l } 
\text { DR } & \text { Cash } & £ 10000 & \
\text { CR } & \text { Incentive to lessee } & & £ 10000
\end{array}$ 
B)  DR $\quad$Incentive to lessee $\quad$£ 10,000
CR $\quad$Cash$\quad$$\quad$£ 10,000 
C)  DR $\quad$Rent income $\quad$£10,000
CR $ \quad $ Rent expense$\quad$£10,000 
D)  DR $\quad$Cash$\quad$£10,000
CR $\quad$Rent income$\quad$£10,000 
A) $\begin{array} { l r l l } 
\text { DR } & \text { Cash } & £ 10000 & \
\text { CR } & \text { Incentive to lessee } & & £ 10000
\end{array}$ 
B)  DR $\quad$Incentive to lessee $\quad$£ 10,000
CR $\quad$Cash$\quad$$\quad$£ 10,000 
C)  DR $\quad$Rent income $\quad$£10,000
CR $ \quad $ Rent expense$\quad$£10,000 
D)  DR $\quad$Cash$\quad$£10,000
CR $\quad$Rent income$\quad$£10,000

Which of the following is included within the scope of IFRS 16 Leases?

Which of the following is an appropriate journal entry for the initial recognition by a lessee of a finance lease arrangement?

Which of the following is an appropriate journal entry for the initial recognition by a lessor of a finance lease arrangement?

Which of the following is NOT one of the situations provided in IFRS 16 Leases in relation to the classification of leases as finance leases?

If a sale and leaseback transaction results in a finance lease, IFRS 16 Leases provides the following accounting treatment for any excess of sales proceeds over the carrying amount:

The minimum lease payment is defined as including all of the following components except:

Burgess Limited accepts a lease incentive to enter into a 3-year operating lease for a building. The incentive is a cash amount of £5000 received on signing of the lease agreement. The lessee initially records this transaction as follows:

A sale and leaseback transaction involves the sale of an asset that is then leased back to the:

Under IFRS 16 Leases, lessors are required to account for lease receipts from operating leases as:

Which of the following is NOT an example of a risk of ownership of an asset?

IFRS 16 Leases requires manufacturer and dealer lessors to recognise selling profit or loss at the:

The user of a leased asset is referred to as the:

Timely Limited accepts a lease incentive to enter into a 4-year operating lease for equipment. The incentive is cash amounting to £10 000 that will be paid on the date the lease agreement is signed. On inception of the lease, the lessor will record:

The Iasb and Its Conceptual Framework

Owners Equity: Share Capital and Reserves

Fair Value Measurement

Revenue From Contracts With Customers

Provisions, Contingent Liabilities and Contingent Assets

Financial Instruments

Share-Based Payment

Inventories

Employee Benefits

Impairment of Assets

Financial Statement Presentation

Statement of Cash Flows

Operating Segments

Other Key Notes Disclosures

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Translation of the Financial Statements of Foreign Entities

Agriculture

Associates and Joint Ventures

Joint Arrangements

Revenue From Contracts With Customers

Financial Instruments

Financial Instruments

Share-Based Payment

Exploration for and Evaluation of Mineral Resources

Filters

Exam 10: Leases

Which of the following is included within the scope of IFRS 16 Leases?

Which of the following is an appropriate journal entry for the initial recognition by a lessee of a finance lease arrangement?

Which of the following is an appropriate journal entry for the initial recognition by a lessor of a finance lease arrangement?

Which of the following is NOT one of the situations provided in IFRS 16 Leases in relation to the classification of leases as finance leases?

If a sale and leaseback transaction results in a finance lease, IFRS 16 Leases provides the following accounting treatment for any excess of sales proceeds over the carrying amount:

The minimum lease payment is defined as including all of the following components except:

Burgess Limited accepts a lease incentive to enter into a 3-year operating lease for a building. The incentive is a cash amount of £5000 received on signing of the lease agreement. The lessee initially records this transaction as follows:

A sale and leaseback transaction involves the sale of an asset that is then leased back to the:

Under IFRS 16 Leases, lessors are required to account for lease receipts from operating leases as:

Which of the following is NOT an example of a risk of ownership of an asset?

IFRS 16 Leases requires manufacturer and dealer lessors to recognise selling profit or loss at the:

The user of a leased asset is referred to as the:

Timely Limited accepts a lease incentive to enter into a 4-year operating lease for equipment. The incentive is cash amounting to £10 000 that will be paid on the date the lease agreement is signed. On inception of the lease, the lessor will record:

The Iasb and Its Conceptual Framework

Owners Equity: Share Capital and Reserves

Fair Value Measurement

Revenue From Contracts With Customers

Provisions, Contingent Liabilities and Contingent Assets

Financial Instruments

Share-Based Payment

Inventories

Employee Benefits

Impairment of Assets

Financial Statement Presentation

Statement of Cash Flows

Operating Segments

Other Key Notes Disclosures

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Translation of the Financial Statements of Foreign Entities

Agriculture

Associates and Joint Ventures

Joint Arrangements

Revenue From Contracts With Customers

Financial Instruments

Financial Instruments

Share-Based Payment

Exploration for and Evaluation of Mineral Resources

Filters