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.

Question

Quizplus · Accepted Answer

AASB 117 requires the lessee to use the incremental borrowing rate of the lessee as the implicit interest rate if it cannot be determined. This is the rate that the lessee would have to pay if they were to borrow funds to purchase the asset being leased. The incremental borrowing rate reflects the specific circumstances of the lessee, such as their creditworthiness and the security for the loan, and is therefore more appropriate than the other options listed.

In Circumstances Where the Lessee Is Unable to Determine the Implicit