2238 – Financial Reporting, 3.

5 ECTS
Semester 1 First Half (T1)
2023-2024

Exercises – Lecture 4

• Exercise 1 (Leasing - Exercise)

On January 1, 20X1, your company entered in leasing contract as a lessee for a plant. The present value of
the lease payments using the relevant discount rate of 10% is of Euros 124,343. The contract establishes
periodical annual end-year payments equal to Euros 50,000 for 3 years. The plant has a useful life of 5 years
and it is depreciated according to the straight-line method.

Present the journal entries (with date, accounts, debit and credit) of your company for the first year.

• Exercise 2 (Income Taxes - Exercise)

Company A records a pre-tax accounting profit of 100,000 in fiscal year X.

To the purpose to calculate income taxes, the company reports that:

• Revenues include a gain on the sale of assets for 10,000. The tax rules allow to defer the taxation of
50% of such gain to the following year;
• Depreciation expense have been charged for 8,000. The tax rules allow an accelerated depreciation
method which translates into a deductible depreciation amount for 12,000;
• Expenses include a bad debt expense for 3,000. The maximum tax deductible amount is 2,500 (the
rest will be deductible when the actual loss is incurred);
• The revenues include dividends that are tax-exempt for 1,000.

The income tax rate is 30%.

Calculate the current and deferred tax effects for fiscal year X presenting the corresponding journal entries
(with date, accounts, debit and credit).

• Exercise 3 (Leasing and Income taxes – Theory)

For each statement, indicate if it is true or false, and explain your choice.

1. Based on IFRS 16, a lessee has to always recognize in the balance sheet the right-to-use the asset
and the liability for the obligation to make lease payments.
2. IFRS 16 postulates that the accounting recognition for the lessee must be the same for both
operational and financial leasing.
3. The lease liability to be recognized for the lessee corresponds to the lease payments to make in
the first year of the leasing contract.
4. If the difference between the accounting and the taxable profit is determined by permanent
differences, then Deferred Tax liabilities must be recognized.
5. Dividends that are tax exempt determine a temporary difference between the accounting and
the taxable profit.