Accounting for Leasing

A contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration, given that the supplier has a substantive right regarding the said asset.

• Manufacturer's Lease

• Lease

• Finance Lease

• None of the above

The lease term refers to the cancelable period of lease together with:

a. periods covered by an option to renew if the lessee is reasonably certain to exercise that option

b. periods covered by an option to terminate the lease if the lessee is reasonably certain NOT to exercise that option

• True

• False

A right-of-use asset shall initially be recognized at ________

Which of the following items are included in measuring the right-of-use asset?

(NOTE: You can choose more than one answer)

• FV of lease payments paid

• Cost of lease payments not yet paid

• initial direct costs incurred by the lessee

• Any estimated costs for dismantling and removing the asset

• Lease bonus to the lessor

Lease incentives granted by the lessor shall be included in determining the fixed lease payments.

• True

• False

If residual value at the end of the lease term is lower than the amount guaranteed by the lessee, it is recognized as loss in the books of the lessor.

• True

• False

Answer explanation

If residual value at the end of the lease term is lower than the amount guaranteed by the lessee, the lessee is required to pay for the deficiency

The lessee shall present the right-of-use asset separately from other assets. However, a right-of-use asset that meets the definition of an investment property need not be presented separately from other assets.

• True

• False

Cash payments for lease liability : financing activity

Cash payments for short-term lease : ___________

• Operating Activity

• Investing Activity

• Financing Activity

• None of the above

Which of the following is/are indicator/s of a finance lease?

(NOTE: Select all that apply.)

• Transfer of ownership of the asset to the lessee by the lessor

• PV of lease payments amounts to substantially all of the FV of leased asset

• The lessee has an option to purchase the asset at a price significantly lower than the fair value

• The economic term is for the major part of the useful life of the asset even if the title is not transferred

• The underlying asset is common in nature

Lessor Co. entered into two contract leases. Lease #1 transfers substantially all the risks and rewards incidental to ownership of the leased asset. Lease #2 does not transfer substantially all the risks and rewards incidental to ownership of the leased asset. How should Lessor Co. classify the leases? (Lease #1); (Lease #2)

• Finance, Operating

• Finance, Finance

• Operating, Finance

• Operating, Operating