LEASING

Multiple choice questions

1. The IFRS 16 shall be applied:

a) To all leases
b) To short term leases and leases which the underlying asset is of low value
c) To all leases but with some exclusions and exemptions

2. According to IFRS 16 a contract is or contains a lease if:

a) It conveys the right to control the use of an unidentified asset for a period of time in
exchange for consideration
b) It conveys the right to control the use of an identified asset for a period of time in
exchange for consideration
c) None of the above

3. According to IFRS 16 to assess whether a contract conveys the right to control the use of an
identified asset for a period of time, an entity shall assess whether the customer:
a) Has the right to obtain all the economic benefits from use of the identified asset
b) Has the right to obtain the majority of the economic benefit from use of the identified
asset and the right to direct the use of the identified asset
c) Has the right to obtain substantially all of the economic benefits from use of the identified
asset and the right to direct the use of the identified asset

4. According to IFRS 16 a customer does not have the right to use an identified asset if:
a) The supplier has the ability to substitute alternative assets throughout the period of use
but won’t benefit economically from the substitution
b) The supplier has the ability to substitute the asset throughout the period of use and
would benefit economically from the exercise of its right of substitution
c) The supplier does not have the right to substitute the asset

5. According to IFRS 16 to determine the lease term an entity:

a) Shall always consider the periods covered by an option to extend the lease
b) Shall never consider the periods covered by an option to extend the lease
c) Shall consider periods covered by an option to extend the lease if the lessee is
reasonably certain to exercise that option

6. According to IFRS 16 at the commencement date, a lessee shall recognize:

a) A right-of-use asset and a lease liability in the statement of financial position.
b) Lease payments from operating leases as expenses on a straight line basis
c) An asset in the statement of financial position

7. According to IFRS 16 a lessor:

a) Unlike the lessee ,the lessor shall classify each of its leases as either an operating lease
or a finance lease
b) Shall classify only operating leases
c) Shall classify only finance leases
Exercise 1 - Initial measurement of the right-of-use asset and the lease liability
Lessee enters into a 10-year lease of a floor of a building, with an option to extend for 5 years. Lease
payments are CU 50,000 per year during the initial term and CU 55,000 per year during the optional
period, all payable at the beginning of each year.
To obtain the lease, Lessee incurs initial direct costs of CU20,000, of which CU15,000 relates to a
payment to a former tenant occupying that floor of the building and CU5,000 relates to a commission
paid to the real estate agent that arranged the lease. As an incentive to Lessee for entering into the
lease, Lessor agrees to reimburse to Lessee the real estate commission of CU5,000. At the
commencement date, Lessee concludes that it is not reasonably certain to exercise the option to
extend the lease and, therefore, determines that the lease term is 10 years. The interest rate implicit in
the lease is not readily determinable. Lessee’s incremental borrowing rate is 5 per cent per annum
(which reflects the fixed rate at which Lessee could borrow an amount similar to the value of the right-
of-use asset, in the same currency, for a 10-year term, and with similar collateral).
Prepare all of the journal entries for the lessee relatively to the Initial measurement of the right-of-use
asset and the lease liability according to IFRS 16

Exercise 2
➢ Aircraft lease Company X leases an aircraft for a period of 4 years starting on 1/1/2018.

➢ The investment value is CU 53,767.5.

➢ The lease requires payments of CU 12,024 on an annual basis for the duration of the lease
term.

➢ The contract has two components:

1. The annual lease component of the lease payments is CU 10,008 and

2. the service component is CU 2,016.

3. There is no option to renew the lease or purchase the aircraft, and there is no residual
value guarantee.

4. The rate implicit in the lease is 5%.

5. The net present value of the lease payments using a 5% discount rate is CU 35,488.
Complete the following table according to IFRS 16
01/01/18 31/12/18 31/12/19 31/12/20 31/12/21 TOT
Balance sheet
Right-of-use
asset
Lease
liability
Income statement

Operating
expense
Depreciation
Interests
Net Income