Question 1

Under AASB 117 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. C

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

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:

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. D

Question 4

Which of the following is included within the scope of AASB 117?

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.

Question 5

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/accounts payable 
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/accounts payable 
D)  DR Leased asset: CR Cash

Question 6

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 7

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

Accepted Answer

A)  DR Leased asset: CR Lease liability 
B)  DR Lease rental expense: CR Cash/accounts payable 
C)  DR Leased asset: CR Cash/accounts payable 
D)  DR Lease asset: CR Lease interest expense 
A)  DR Leased asset: CR Lease liability 
B)  DR Lease rental expense: CR Cash/accounts payable 
C)  DR Leased asset: CR Cash/accounts payable 
D)  DR Lease asset: CR Lease interest expense

Question 8

Which of the following is NOT one of the situations provided in AASB 117 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 9

AASB 117 deems cancellable leases with which of the following characteristics to be non-cancellable:

Accepted Answer

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

Question 10

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 period over which the asset should be depreciated by the lessee is:

Accepted Answer

A)  3 years. 
B)  6 years. 
C)  the rate as determined by the Commissioner of Taxation. 
D)  not able to be determined from the information provided. 
A)  3 years. 
B)  6 years. 
C)  the rate as determined by the Commissioner of Taxation. 
D)  not able to be determined from the information provided.

Question 11

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.

Question 12

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)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Question 13

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

Accepted Answer

A)  legal title to property is transferred to the lessee when the first lease payment is made. 
B)  ownership passes to the lessor on inception date of the lease. 
C)  substantially all of the risks and benefits of ownership remain with the lessor. 
D)  usual risks and benefits of ownership are transferred to the user. 
A)  legal title to property is transferred to the lessee when the first lease payment is made. 
B)  ownership passes to the lessor on inception date of the lease. 
C)  substantially all of the risks and benefits of ownership remain with the lessor. 
D)  usual risks and benefits of ownership are transferred to the user.

Question 14

If a sale and leaseback transaction results in a finance lease, AASB 117 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 15

AASB 117 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 16

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 17

According to AASB 117 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.

Question 18

With respect to operating leases, lessors are required under AASB 117 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 19

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 20

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)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Exam 10: Leases

Under AASB 117 Leases, lessors are required to account for lease receipts from operating leases as:

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 included within the scope of AASB 117?

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

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 an operating lease arrangement?

Which of the following is NOT one of the situations provided in AASB 117 in relation to the classification of leases as finance leases?

AASB 117 deems cancellable leases with which of the following characteristics to be non-cancellable:

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:

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

If a sale and leaseback transaction results in a finance lease, AASB 117 Leases, provides the following accounting treatment for any excess of sales proceeds over the carrying amount:

AASB 117 requires manufacturer and dealer lessors to recognise selling profit or loss at the:

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

According to AASB 117 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 user of a leased asset is referred to as the:

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Financial Instruments

Income Taxes

Share Capital and Reserves

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Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Reporting

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

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