RS: Accounting for Leases

If a lease provides for the transfer of ownership over the leased asset or a purchase option that is reasonably certain as to exercise

• a. the lessor shall depreciate the leased asset over its useful life
• b. the lessee shall depreciate the leased asset over the shorter of the asset's useful life and the remaining lease term
• c. the lessee shall depreciate the leased asset over its useful life
• d. both the lessee and the lessor shall depreciate the leased asset

Which of the following will not be included in the net investment of the lessor?

• a. Lease payments
• b. Unguaranteed residual value
• c. Initial direct cost incurred by a manufacturer or a dealer
• d. Initial direct cost except for cost incurred by a manufacturer or a dealer

A lessor recognizes interest (finance) income on a finance lease in

• a. A decreasing manner
• b. An increasing manner
• c. Equal amounts each period
• d. Any of these

The basic accounting issue for a lessor is

• a. Revenue recognition during the lease term
• b. Computing depreciation over the lease term
• c. Expense recognition during the lease term
• d. Determination of the cost of the leased asset

Which statement is correct regarding the lease capitalization criteria?

• a. The lease transfers ownership of the underlying asset to the lessor
• b. The lease contains a purchase option
• c. The lease term is equal to at least 75% of the economic life of the underlying asset
• d. The lease payments are at least 90% of the fair value of the underlying asset

I. Lessors should recognize asset held under a finance lease in a statement of financial position as a receivable at an amount equal to the gross investment in the lease. II. If right-of-use assets relate to a class of PPE to which the lessee applies the revaluation model in PAS 16, the lessee shall also apply the revaluation model to all of the right-of-use assets that relate to that class of PPE.

• a. Both statements are correct
• b. Both statements are incorrect
• c. Only I statement is correct
• d. Only II statement is correct

On January 10, Kabahan Ka Na Company leased a truck for a four-year period, which will be returned to the lessor. Annual lease payments every end of the year is amounting to P230,000, with a 5% discount rate. If Kabahan Ka Na Company's revenue exceed a specified amount during the lease term, Kabahan Ka Na will pay an additional 20,000 lease payment at the end of the lease. Kabahan Ka Na estimates a 60% probability of meeting the target revenue amount. What amount, if any, should be added to the right-of-use asset and lease payable under the contingent rent agreement?

• a. An additional 10,000 should be added
• b. No additional amount should be added
• c. An additional 20,000 should be added
• d. An additional 12,000 should be added

Lessors should recognize asset held under a finance lease in a statement of financial position as a receivable at an amount equal to the net investment in the lease.

• a. Residual value, whether guaranteed or unguaranteed
• b. Gross investment in the lease
• c. Gross rentals
• d. Net investment in the lease

I. In an operating lease, assuming the exception were satisfied, the rent expense recognized by the lessee is always equal to the rent income recognized by the lessor. II. In an operating lease, the annual payment of the lessee includes financing component of renting the asset over the lease term.

• a. Both statements are correct
• b. Both statements are incorrect
• c. Only statement I is correct
• d. Only statement II is correct

I. Generally, low-value assets shall be fully depreciated the year of the purchase or in the period of acquisition II. The gross profit amount in a dealer's lease is greater when a guaranteed residual value exists

• a. Both statements are correct
• b. Both statements are incorrect
• c. Only statement I is correct
• d. Only statement II is correct