In circumstances where the lessee is unable to determine the implicit interest rate in a lease agreement,AASB 117 requires the lessee to use.
A) The incremental lending rate of the lessor.
B) The weighted average cost of capital of the lessee.
C) The incremental borrowing rate of the lessee.
D) The internal rate of return on similar projects adopted by the lessor.
E) None of the given answers.

Question

Quizplus · Accepted Answer

AASB 117 requires the lessee to use the incremental borrowing rate of the lessee in calculating the implicit interest rate in a lease agreement in circumstances where it cannot be determined. This is because the implicit interest rate reflects the rate at which the lessee would have borrowed funds to purchase the asset, and the incremental borrowing rate is the rate that the lessee would expect to pay to borrow funds in the current market environment to fund similar transactions.

In Circumstances Where the Lessee Is Unable to Determine the Implicit