Deck 10: Leases

Question 1

Features of lease agreements that can be manipulated to support the lease being classified as an operating lease include:

A)bargain price options.
B)economic life estimates.
C)residual values.
D)all of the above.

Answer 1

D

Question 2

Initial direct costs incurred by a manufacturer or dealer lessor effectively are recognised as:

A)a component of the lease receivable.
B)part of the profit or loss on sale.
C)part of the carrying amount of the asset.
D)part of the lease expense.

Answer 2

B

Question 3

Assets that are leased under an operating lease should be:

A)depreciated by the lessee over the economic life of the asset.
B)recognised by the lessee as an asset and depreciated according to the pattern of economic benefits from use.
C)regarded as an operating activity by lessees and lease payments charged to profit and loss on a systematic basis.
D)recognised as an unidentifiable intangible asset and tested annually for impairment.

Answer 3

C

Question 4

According to AASB 117 Leases,the payments made under a finance lease over the lease term must be divided and allocated into four components.Which of the following is NOT one of the relevant components?

A)Reduction of the lease liability.
B)Interest expense incurred.
C)Reimbursement of lessor costs.
D)Receipt of lease incentives.

Question 5

Under AASB 117 Leases,lessors are required to account for lease receipts from operating leases as:

A)revenue,on a reducing balance basis over the lease term.
B)income,on inception date of the lease.
C)income,on a straight-line basis over the lease term.
D)revenue,at the end of the lease term.

Question 6

Interpretation 4 Determining Whether an Arrangement Contains a Lease provides that the following arrangements which are not in the legal form of a lease may in fact fall within the definition of a lease for accounting purposes,except for:

A)outsourcing arrangements.
B)non-cancellable service agreements.
C)service concession arrangements.
D)take-or-pay contracts.

Question 7

On 30 June 2015,Malta Ltd leased a vehicle to Tango Ltd.Malta Ltd had purchased the vehicle on that day for its fair value of $75 625.The lease agreement cost Malta Ltd $1200 to have drawn up and requires Tango to reimburse Malta for annual insurance costs of $945.The amount recorded as a lease receivable by Malta Ltd at the inception of the lease is:

A)$74 425.
B)$75 625.
C)$76 570.
D)$76 825.

Question 8

AASB 117 defines a non-cancellable lease to mean a lease that is cancellable in limited circumstances only if:

A)the lessor cancels with the permission of the lessee.
B)some remote contingency occurs.
C)the lessor incurs a penalty large enough to discourage cancellation.
D)the lessee can cancel the lease at any time without any significant impediment or economic disincentive.

Question 9

When depreciating a leased asset which it expects to buy,a lessee will use which of the following calculations to determine the annual depreciation amount?

A)Depreciable amount of leased asset / lease term.
B)Total of minimum lease payments / lease term.
C)Depreciable amount of leased asset / useful life of leased asset.
D)Useful life of leased asset/Total of minimum lease payments.

Question 10

Which of the following statements is incorrect?

A)The capitalisation of a leased asset increases the value of reported non-current assets and reduces the return on assets ratio.
B)Recognition of the present value of future lease payments as a liability increases reported current and non-current liabilities.This favourably affects gearing ratios.
C)The recognition of finance leases may have adverse consequences on the financial statements of a lessee entity.
D)The different accounting approaches for finance leases and operating leases provide an incentive for managers to misclassify lease arrangements as operating leases.

Question 11

If a sale and leaseback transaction results in a finance lease,AASB 117 Leases,provides the following accounting treatment for any excess of sales proceeds over the carrying amount:

A)recognise directly in retained earnings of the seller-lessee.
B)defer and amortise over the lease term.
C)immediately recognise as income by the seller-lessee.
D)include in the capitalised amount of the leased asset.

Question 12

The following information relates to a lease between Canneries Limited (lessor)and Fruiterers Limited (lessee).3 lease payments of $20 000 each are made annually in advance and a final lease payment of $15 000 is made at the end of the 3 year lease term.The implicit interest rate is 10%.The amount of the interest expense that is recognised when the second payment of the lease is paid is:

A)$4598.
B)$6598.
C)$7500.
D)$15 402.

Question 13

With respect to operating leases,lessors are NOT required under AASB 117 Leases,to disclose:

A)total contingent rents recognised as income in the period.
B)future minimum lease payments under cancellable operating leases,separately.
C)a general description of the lessee's leasing arrangements.
D)future minimum lease payments under non-cancellable operating leases in aggregate.

Question 14

With respect to finance leases,lessors are required under AASB 117 Leases,to disclose:

A)unguaranteed residual values accruing to the benefit of the lessor.
B)total contingent rents recognised as expense in the period.
C)a general description of the lessee's material leasing arrangements.
D)the aggregate of future minimum lease payments under non-cancellable leases.

Question 15

Which of the following is not an example of a risk of ownership of an asset?

A)Uninsured damage.
B)Idle capacity.
C)Technical obsolescence.
D)Gains on the eventual sale of the asset.

Question 16

A lessee when accounting for a lease incentive received under an operating lease treats it as a(n):

A)increase in rental expense over the lease term.
B)increase in rental income over the lease term.
C)reduction in rental income over the lease term.
D)reduction in rental expense over the lease term.

Question 17

Which of the following is included within the scope of AASB 117?

A)Lease agreement for an oil refinery.
B)Lease agreements for biological assets.
C)Lease agreements to explore for minerals.
D)Licensing agreements for motion picture films.

Question 18

Which of the following is not one of the situations provided in AASB 117 in relation to the classification of leases as finance leases?

A)Losses from the fluctuation of the fair value of the asset accrue to the lessee.
B)Leased assets are of a specialised nature.
C)The lessee has provided a guarantee that they will acquire the asset at the end of the lease term.
D)The lease is for a major part of the economic life of the asset.