Deck 7: Leases

Question 1

Incentives in leasing arrangements include:

A)payment of certain costs on behalf of the lessee
B)cash payments by the lessor to the lessee
C)periods of no or reduced rental
D)all of the above

Answer 1

D

Question 2

The type of finance lease that is in substance the sale of inventory is a/an:

A)direct finance lease
B)manufacturer/dealer lease
C)sale and leaseback lease
D)none of the above

Answer 2

B

Question 3

Which of the following statements is not correct?

A)the rewards of ownership relate to the benefits obtained from using the asset and any appreciation in its resale value at the end of the lease
B)leases that are not finance leases are operating leases
C)title,or ownership,is essential to the definition of an asset
D)the risks of ownership relate to any inability to derive the full expected benefits from use,depreciation in resale value,and obsolescence

Answer 3

C

Question 4

Which of the following statements about accounting for finance leases by lessees is not correct?

A)the liability reflects the right to use the asset
B)the asset reflects the right to use the asset
C)the liability is an obligation to make future lease payments
D)finance leases represent assets and liabilities of the lessee

Question 5

At the commencement of the lease,the amount recognised by the lessee for the asset and liability is measured as the:

A)higher of fair value and present value of minimum lease payments
B)lower of residual value and present value of minimum lease payments
C)lower of fair value and present value of minimum lease payments
D)none of the above

Question 6

Explain incentives in leasing arrangements and how they should be accounted for.

Question 7

Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease include:

A)if the lessee can cancel the lease,the lessor's losses associated with the cancellation are borne by the lessee
B)gains or losses from the fluctuation in the fair value of the residual accrue to the lessee
C)the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent
D)all of the above

Question 8

A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is known as a/an:

A)finance lease
B)operating lease
C)current lease
D)non- current lease

Question 9

Explain the AASB 117 requirements for accounting for operating leases by lessors.

Question 10

Minimum lease payments exclude:

A)reimbursement for service costs and taxes paid by the lessor
B)contingent rent
C)a guaranteed residual value
D)both A and B

Question 11

If a sale and leaseback transaction results in a finance lease,any excess of sales proceeds over the carrying amount shall:

A)be deferred but not amortised over the lease term
B)be immediately recognised as an expense by a seller- lessee
C)not be immediately recognised as income by a seller- lessee
D)be immediately recognised as income by a seller- lessee

Question 12

The gross investment in a finance lease by the lessor is the aggregate of the:

A)the minimum lease payments receivable by the lessor and any guaranteed residual value accruing to the lessor
B)the minimum lease payments receivable by the lessor and any bargain purchase option
C)the minimum lease payments receivable by the lessor and any unguaranteed residual value accruing to the lessor
D)the minimum lease payments receivable by the lessor and any executory costs accruing to the lessor

Question 13

Discuss the major advantages of leasing compared to ownership of an asset.

Question 14

An option to purchase the leased asset for an amount sufficiently below the expected fair value at the end of the lease term is known as a/an:

A)minimum lease option
B)guaranteed residual option
C)bargain purchase option
D)lease term option

Question 15

Under AASB 117,the disclosure requirements for lessors with finance leases include:

A)contingent rents recognised as income in the period
B)the accumulated allowance for uncollectible minimum lease payments receivable
C)the unguaranteed residual values accruing to the benefit of the lessor
D)all of the above

Question 16

Which of the following is an advantage that may make leasing more attractive than ownership of an asset?

A)fixed payments
B)conservation of cash
C)financial reporting advantages
D)all of the above

Question 17

Under AASB 117,the required disclosures for lessees for operating leases include:

A)the total of future minimum lease payments under noncancellable operating leases for several periods
B)a general description of the lessee's significant leasing arrangements
C)lease and sublease payments recognised as an expense in the period
D)all of the above

Question 18

AASB 117 applies to all leases that involve:

A)regenerating assets
B)contracts for services that transfer the right to use assets
C)the exploration or use of minerals,oil and natural gas
D)investment property

Question 19

Examples of situations in AASB 117 that individually or in combination would normally lead to a lease being classified as a finance lease include:

A)the lease transfers ownership of the asset to the lessee by the end of the lease term
B)the lease term is for a minor part of the economic life of the asset is not transferred
C)the lease transfers ownership of the asset to the lessor by the end of the lease term
D)none of the above

Question 20

The rate of return required by a lessor for the use and ultimate disposal of the asset is referred to as the:

A)implicit interest rate
B)guaranteed residual rate
C)incremental borrowing rate
D)none of the above

Question 21

Explain the classification rules for operating and finance leases in AASB 117 and the AASB Framework.

Question 22

Explain the AASB 117 requirements for accounting for finance leases by lessees.

Question 23

Discuss the required accounting treatment for the two types of finance leases for lessors identified by AASB 117.

Question 24

Discuss why lease accounting has been controversial historically.

Question 25

Explain the nature and advantages of sale and leaseback arrangements.

Question 26

Identify the guidelines in AASB 117 in establishing whether,substantially,all the risks and rewards of ownership pass from the lessor to the lessee.