Ch. 8 - Leases

Question 1

Leases - IFRS Section

Answer 1

16

Question 2

Lessee - Initial Measurement (two balance sheet accounts)

Answer 2

1. Right-of-Use asset

2. Lease liability

Question 3

Lessee - Initial Measurement - Right of Use Asset includes:

Answer 3

1. initial measurement of lease liability
2. lease payments made on/before start date, less incentives
3. initial direct costs incurred by lessee
   4 estimate of costs to dismantle/terminate asset

Question 4

Lessee - Initial Measurement - Initial measurement of lease liability

Answer 4

1. All fixed payments
2. variable payments based on an index or rate
3. Bargain purchase option, if expected to be used
4. guarantee residual value
5. termination penalties

Question 5

Lessee - Calculating the PV of future lease payments

1. Rate
2. Periods
3. Payments
4. Future value
5. Type

Answer 5

1. The rate implicit to the lease if known, or incremental borrowing rate
2. periods of the lease
3. fixed and variable payments
4. ending value, include BPO or guaranteed residual. If no BPO or residual, is $0
5. payments at the beginning or end of the period

Question 6

Lessee - Subsequent Measurement of ROU Asset - Options to measure

Answer 6

1. cost model
2. revaluation model
3. fair value model (if ROU assets qualifies as investment property)

Question 7

Lessee - Subsequent Measurement - Cost Model for ROU Asset

Answer 7

measured at cost less accumulated amortization

Question 8

Lessee - Subsequent Measurement - ROU Depreciation Timing:

Answer 8

lesser of:

1. the lease term, and
2. the assets useful life

Question 9

Lessee - Subsequent Measurement of Lease Liability

Answer 9

payments are recorded as a reduction of the liability

Question 10

Lessee - Short Lease or Low Value Lease

• Treatment
• what is considered low value

Answer 10

• Can be expensed as incurred
• Low value when all apply:
  1. low value when new
  2. lessee can benefit from asset on its own or with other resources
  3. the asset is not dependent on other assets

Question 11

Lessee - Disclosures

Answer 11

1. Depreciation and interest expense on ROU assets
2. Expense related to short-term or low value leases
3. Additions and net carrying amounts of ROU assets
4. gains/losses on sale leasebacks

Question 12

Lessor - classification options

Answer 12

1. operating

2. finance

Question 13

Lessor - finance lease criteria (any of them)

Answer 13

1. title transfers at end of lease term
2. a BPO exists and is expected to be exercised
3. term provides substantially all economic benefits to lessee
4. PV of payments are substantially all of FV of the asset
5. The asset is specialized in nature such that only the lessee can use it without modification

Question 14

Lessor - Recording a Finance Lease

Answer 14

1. Record a lease receivable and sales revenue

2. record cost of goods sold and removal of inventory

Question 15

Lessor - Recording an Operating Lease

Answer 15

1. record lease revenue as payments are collected

Question 16

Sale and Leaseback - A sale has not taken place if:

Answer 16

1. the seller-lessee has an obligation to repurchase the asset
2. the seller-lessee has a right/option to repurchase the asset
3. the seller-lessee has an obligation to repurchase the asset at the buyer-lessors request

Question 17

Sale and Leaseback - If a sale has not occurred, it is treated as:

Answer 17

a financing agreement

Question 18

Sale and Leaseback (Lessee) - If a sale has occurred, it is recorded as:

Answer 18

a regular sale (gain/loss on disposal) and a lease asset/liability is recorded

Question 19

ASPE / Lessee - Criteria for capital or operating (one of them)

Answer 19

1. Reasonable assurance that ownership will transfer to lessee (BPO)
2. The term provides substantially all economic benefits to lessee (75% or more)
3. The PV of lease payments is substantially all of FV of asset (90% or more)

Question 20

ASPE / Lessee - Capital Lease Asset

1. Rate
2. Periods
3. Payments
4. FV
5. Type

Answer 20

1. The rate implicit to the lease if known, or incremental borrowing rate
2. periods of the lease (payments made)
3. fixed and variable payments
4. ending value, include BPO or guaranteed residual. If no BPO or residual, is $0
5. payments at the beginning or end of the period

Question 21

ASPE / Lessee - Lease Liability (differences from IFRS)

Answer 21

1. non-lease component costs are excluded
2. discount rate is lesser of implicit rate and borrowing rate
3. leased asset cannot be recognized at an amount higher than its fair value

Question 22

ASPE / Lessor - Capital Lease Criteria

Answer 22

1. Any of:
   a. Reasonable assurance that ownership will transfer to lessee (BPO)
   b. The term provides substantially all economic benefits to lessee (75% or more)
   c. The PV of lease payments is substantially all of FV of asset (90% or more); and
2. credit risk is normal compared to similar receivables; and
3. costs under the lease can be reasonably estimated