Question 1

Which of the following is NOT one of the situations provided in IAS 17 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 2

Which of the following statements is incorrect?

Accepted Answer

A)  More onerous disclosure requirements are prescribed for finance leases than operating leases. 
B)  Depreciation and interest expenses on finance leases may exceed rental payments and result in lower profits being reported in the early years of a finance lease. 
C)  The capitalisation of a leased asset increases the value of reported non-current assets and increases the return on assets ratio. 
D)  Depreciation and interest expenses relating to leases are not deductible for tax purposes, so additional liabilities may have to be recognised under IAS 12 Income Taxes when these expenses are less than the deduction for rental payments. 
A)  More onerous disclosure requirements are prescribed for finance leases than operating leases. 
B)  Depreciation and interest expenses on finance leases may exceed rental payments and result in lower profits being reported in the early years of a finance lease. 
C)  The capitalisation of a leased asset increases the value of reported non-current assets and increases the return on assets ratio. 
D)  Depreciation and interest expenses relating to leases are not deductible for tax purposes, so additional liabilities may have to be recognised under IAS 12 Income Taxes when these expenses are less than the deduction for rental payments.

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  The capitalisation of a leased asset increases the value of reported non-current assets and reduces the return on assets ratio. 
B)  Recognition of the present value of future lease payments as a liability increases reported current and non-current liabilities. This favourably affects debt-equity ratios and liquidity- solvency ratios. 
C)  Depreciation and interest expenses on finance leases may exceed rental payments and result in lower profits being reported in the early years of the lease. 
D)  More onerous disclosure requirements are prescribed for finance leases than for operating leases. 
A)  The capitalisation of a leased asset increases the value of reported non-current assets and reduces the return on assets ratio. 
B)  Recognition of the present value of future lease payments as a liability increases reported current and non-current liabilities. This favourably affects debt-equity ratios and liquidity- solvency ratios. 
C)  Depreciation and interest expenses on finance leases may exceed rental payments and result in lower profits being reported in the early years of the lease. 
D)  More onerous disclosure requirements are prescribed for finance leases than for operating leases.

Question 4

A lessee when accounting for a lease incentive received under an operating lease treats is as a:

Accepted Answer

A)  increase in rental income over the lease term 
B)  increase in rental expense over the lease term 
C)  reduction in rental expense over the lease term 
D)  reduction in rental income over the lease term 
A)  increase in rental income over the lease term 
B)  increase in rental expense over the lease term 
C)  reduction in rental expense over the lease term 
D)  reduction in rental income over the lease term

Question 5

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

Question 6

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%
-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

Question 7

According to IAS 17 Leases, because lease payments are made over the lease term, the payments made under a finance lease must be divided into the following components:

Accepted Answer

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

Which of the following is NOT one of the situations provided in IAS 17 in relation to the classification of leases as finance leases?

Which of the following statements is incorrect?

Which of the following statements is incorrect?

A lessee when accounting for a lease incentive received under an operating lease treats is as a:

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

According to IAS 17 Leases, because lease payments are made over the lease term, the payments made under a finance lease must be divided into the following components:

The Conceptual Framework of the Iasb

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Inventories

Employee Benefits

Property, Plant and Equipment

Intangible Assets

Business Combinations

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Translation of the Financial Statements of Foreign Entities

Associates and Joint Ventures

Joint Arrangements

Filters

Exam 12: Leases

Which of the following is NOT one of the situations provided in IAS 17 in relation to the classification of leases as finance leases?

Which of the following statements is incorrect?

Which of the following statements is incorrect?

A lessee when accounting for a lease incentive received under an operating lease treats is as a:

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

According to IAS 17 Leases, because lease payments are made over the lease term, the payments made under a finance lease must be divided into the following components:

The Conceptual Framework of the Iasb

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Inventories

Employee Benefits

Property, Plant and Equipment

Intangible Assets

Business Combinations

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Translation of the Financial Statements of Foreign Entities

Associates and Joint Ventures

Joint Arrangements

Filters