Subject: ACCM4200- Online A

Student Number: 137824

Name: Danica Garcia Alvarado

Comprehension questions: SOLUTION WEEK 7

2. Why was it considered that by not recognising some leased assets and associated
liabilities in the statement of financial position, an entity may provide misleading
information?

According to the AASB 16 / IFRS 16 standard, all companies are subject to an initial recognition
of their assets, whether operational or financial, providing truthful and reliable information for
the correct issuance of reports, not declaring any of these assets can result in an incorrect
declaration of the capital invested by the lessee.

3. What was the major change in accounting for leases introduced by new accounting
standard AASB 16/IFRS 16?

IFRS 16 Leases was released to replace IAS 17 Leases and was promptly adopted by AASB as
AASB 16/IFRS 16. The new standard was issued to include all those assets and liabilities,
whether operational or financial, that are included in the balance sheet, since not recognizing
it could be considered as misleading information by not providing a faithful representation of
the transactions.

4. What characteristics should a contract have to be considered a lease?

Appendix A of AASB 16/IFRS 16, a lease contract is considered to be an agreement between

two parties that gives the right to use an asset for a specified period of time. It mainly has two
characteristics:

a) The lessor acquires the right to obtain substantially all the economic benefits from the use
of the assets.

b) The right to direct the use of the identified asset.

Application and analysis exercises

Exercise 10.2

Accounting by lessee

Max Ltd prepares the following lease payments schedule for the lease of a machine from
Payne Ltd. The machine has an economic life of 6 years. The lease agreement requires four
annual payments of $33 000, and the machine will be returned to Payne Ltd at the end of the
lease term.
Required

The following three multiple-choice questions relate to the information provided above.

Select the correct answer and show any workings required.

1. For the year ended 30 June 2019, what would Max Ltd record in relation to the lease?

(a) An interest payable of $26 488

(b) An interest payable of $nil

(c) An interest payable of $9851

(d) An interest payable of $7836

Answer: For the year ended 30 June 2019, the interest payable (to be paid on 1 July 2019) is
equal to the interest expense recognised for the year

2. How much annual depreciation expense would Max Ltd record?

(a) $24 628

(b) $16 419

(c) $15 585

(d) $23 378

Answer:

Presente = $30 000 x 3.1699 (T2 x 0.10 x 4) + $5 000 x 0.6830 [T1 x 0.10 x 4]

= $95 097 + $3415

= $98 512

Depreciation expense = ($98 512 - $5 000) / 4 years = $23 378

3. If Payne Ltd (the lessor) records a lease receivable of $102 327, the variance between this
receivable and the liability of $98 512 recorded by Max Ltd could be due to what?
(a) Initial direct costs paid by Payne Ltd

(b) An unguaranteed residual value

(c) Both of the above

(d) Neither of the above