LEASE

1 On 1 January 20X7 Melon leased an asset under the following payment terms:
$
Deposit 6,000
Balance 14,200
Total contract price 20,200

The balance is payable in two annual instalments commencing 31 December 20X7.

The interest rate implicit in the lease contract is 12%.
The present value of $1 receivable at the end of the year, based on a discount rate of 12%, is:

12%
$
End of year 1 0.89
2 0.8

What is the finance charge to profit or loss for the year ended 31 December 20X7,
in accordance with IFRS 16 Leases? (Answer in $ in the Answer box)

2 IFRS 16 Leases requires a lessee to recognise a right-of-use asset initially at cost.

Which TWO of the following amounts will be included in the initial cost?
A.The amount of the lease liability
B.Total interest expense over the period of the lease
C.Initial direct costs incurred by the lessor
D.Estimated costs of dismantling the asset at the end of the lease term

3 Acor leases a new machine. The interest rate implicit in the lease is 13% per annum. The
initial amount recognised for the right-of-use asset is $1,750,000. The lease is for four years and
Acor is required to make four annual payments of $520,000, with the first payment due on
commencement of the lease agreement.
Acor’s policy is to depreciate similar machinery over five years on the straight line basis.
What is the correct total expense to profit or loss for the first year of the lease?

A. $509,900
B. $577,500
C. $597,400
D. $665,000

4 Z entered into a lease agreement on 1 November 20X2. The lease was for
five years, the present value of the lease liability was $45,000 and the interest
rate implicit in the lease was 7%. The annual payment was $10,975 in arrears.
What is the non-current lease liability as at 31 October 20X3?

A. $27212
B. $28802
 C. $29350
$37175

5 During the year ended 30 September 20X4 Hyper entered into two lease transactions:

On 1 October 20X3, a payment of $90,000 being the first of five equal annual
payments of a lease for an item of plant. The lease has an implicit interest rate
of 10% and the carrying amount of the ROU asset and the present value of the
lease liability were both initially measured at $340,000.

On 1 January 20X4, a payment of $18,000 for an eight-month lease of an item

of excavation equipment.

What total expense should be recognised in Hyper’s statement of profit or

loss for the year ended 30 September 20X4 in respect of the above
transactions?

A. $108,000
B. $111,000
C. $106,500
D. $115,500

6 Flotsam Co entered into a three-year lease agreement for an item of plant on

1 April 20X0. The agreement requires annual payments of $150,000 in arrears.
The present value of the lease payments at the inception of the lease,
discounted at a rate of 8%, is $386,550. Additionally, Flotsam Co paid directly
attributable costs of $7,500 on 1 April 20X0.

What amounts should be charged to profit or loss relating for the year
ended 31 March 20X1 in respect of the right-of-use asset?

Answer Depreciation ($) Lease interest

expense ($)
A 131,350 31,524
B 128,850 30,924
C 131,350 30,924
D 128,850 31,524

7 Blue Co entered into a four-year lease agreement on 1 January 20X0. It

required payments of $19,000 to be made annually in arrears. The interest rate
implicit in the lease is 10% and the present value of the lease payments at the
inception of the lease is $60,230. As at 31 December 20X0, only the first
instalment has been recognised as an expense in the in the financial
statements.

What is the effect of the incorrect treatment on Blue Co’s profit for the
year ended 31 December 20X0?
A. Overstated by $2,080
 B. Understated by $2,080
C. Overstated by $3,943
D. Understated by $3,943

8 Jetsam Co entered into a lease for an item of plant on 1 April 20X0 which
required payments of $15,000 to be made annually in arrears. The present
value of the lease payments was estimated to be $100,650 at the inception of
the lease and the rate of interest implicit in the lease was 8%. Both the lease
term and the plant’s estimated useful life was ten years.

What is the total amount that should be charged to profit or loss for the
A $6,039
B $11,250
C $13,588
D $18,802

9 Cornet Co entered into an eight year lease agreement on 1 July 20X4. The
lease requires annual payments of $750,000 in arrears. The present value of
the lease payments at 1 July 20X4, discounted at a rate of 6% is $4,657,500.
Additionally Cornet Co paid directly attributable costs of $37,500 on 1 July 20X4.

What is the total charge to the statement of profit or loss for the year ended 30 June 20X5?

A. $279,450
B. $586,875
C. $866,325
D. $1,029,450

FINANCIAL INSTRUMENTS
1 TS purchased 100,000 of its own equity shares in the market and classified them
as treasury shares. At the end of the accounting period TS still held the treasury shares.

Which of the following is the correct presentation of the treasury

shares in TS’s closing statement of financial position in accordance
with IAS 32 Financial Instruments: Presentation?

A. As a current asset investment

B. As a non-current liability
C. As a non-current asset
D. As a deduction from equity

4 On 1 January 20X2 LMN issued $2.0m 8% convertible debt at par. The

debt is repayable, or convertible, at a premium of 20% four years after
issue. The effective interest rate for the debt is 12%.
 What is the finance charge to LMN’s profit or loss (to the nearest
$000) for the year ended 31 December 20X3? (Answer to nearest $000
in the Answer box)

5 On 1 October 20X3, Bertrand issued $10m convertible loan

notes which carry a nominal interest (coupon) rate of 5% per
annum. The loan notes are redeemable on 30 September 20X6
at par for cash or can be exchanged for equity shares. A similar
loan note, without the conversion option, would have required
Bertrand to pay an interest rate of 8%.

The present value of $1 receivable at the end of each year,

based on discount rates of 5% and 8%, is:
5% 8%
End of year 1 0.95 0.93
2 0.91 0.86
3 0.86 0.79
Match the amounts that will be recognised as equity and non-current
liability in respect of the convertible loan on initial recognition (1
October 20X3).

Equity $_________
Non-current Liability $_________

6 Tonton Co acquired 9,000 shares in Pogo Co on 1 August 20X3 at a

cost of $6.40 per share. Tonton Co incurred transaction costs of $9,000 for
this transaction. Tonton Co elected to hold these shares at fair value
through other comprehensive income.

At 31 December 20X3, the fair value of the Pogo Co shares was $7.25 per
share and selling costs were expected to be 4%.

What is the value of the Pogo Co shares in Tonton Co’s individual

financial statements at 31 December 20X3? (Answer in $ in the
Answer box)

7 On 1 July 20X7, a company purchased a five-year loan note investment

with a par value of $7m. The investment was purchased at a 12%
discount. The loan note has a coupon rate of 5% and an effective interest
rate of 7%. Interest is receivable annually in arrears. The company has the
intention of holding the loan note to receive the contractual cash flows.

How much finance income should be reported in the statement of

profit or loss of the company for the year ended 30 June 20X9 (to the
nearest $000)? (Answer to nearest $000 in the Answer box)