Exam 12: Leases

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

On 30 June 2013, 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:

Nelson Ltd manufactures specialised machinery for both sale and lease. On 1 July 2013, Nelson leased a machine to Poggi Ltd. The machine cost Nelson Ltd $195 000 to manufacture, and its fair value at the inception of the lease was $212 515. The interest rate implicit in the lease is 10%, which is in line with current market rates. Under the terms of the lease, Poggi Ltd has guaranteed $25 000 of the asset's expected residual value of $37 000 at the end of the 5-year lease term. The debit to the sales revenue account in Nelson's books is:

A finance lease is an agreement between an owner of an asset and a user of that asset wherein the:

The main concerns about the current accounting standard relating to leases include: I the dividing line between finance and operating leases is hard to define in a principled way II obligations under cancellable operating leases are little different from borrowings, but are not recognised as liabilities III assets used in the business that are held under operating leases are not shown on the statement of financial position, thereby understating return on assets IV leases are scoped out of the financial instruments standards, leading to inconsistencies between leases and similar transactions

The following information relates to questions 8-10 Adam Limited and Davies Limited enter into a finance lease agreement with the following terms: $\blacktriangleright$ lease term is 3 years $\blacktriangleright$ estimated economic life of the leased asset is 6 years $\blacktriangleright$ 3 × annual rental payments of $23 000 each payment is one year in arrears $\blacktriangleright$ residual value at the end of the lease term is not guaranteed by the lessee $\blacktriangleright$ interest rate implicit in the lease is 7% -The period over which the asset should be depreciated by the lessee is:

Interpretation 4 Determining Whether an Arrangement Contains a Lease provides that the following arrangements which are NOT in the legal form of a lease may in fact fall within the definition of a lease for accounting purposes:

With respect to operating leases, lessors are required under IAS 17 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.

IAS 17 deems cancellable leases with which of the following characteristics to be non-cancellable:

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

Under IAS 17 Leases, lessors are required to account for lease receipts from operating leases as:

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

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.

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

IAS 17 requires manufacturer and dealer lessors to recognise selling profit or loss at the:

If a sale and leaseback transaction results in a finance lease, IAS 17 Leases, provides the following accounting treatment for any excess of sales proceeds over the carrying amount:

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

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

Which of the following is NOT a reason given by the IASB to remove the requirement to classify leases from any future accounting standard?

Which of the following is included within the scope of IAS 17?