Deck 16: Leases

Question 1

A lease conveys the right to use an asset and legal ownership for the duration of the lease.

Answer 1

False

Question 2

When calculating the present value of lease payments fi the implicit rate is not available what rate should be used?

A)LIBOR
B)weighted average cost of capital
C)incremental borrowing rate
D)industry average rate

Answer 2

C

Question 3

To which of the following does IAS 17 apply?

A)investment property
B)biological assets.
C)specialised equipment such as refineries
D)exploration rights

Answer 3

C

Question 4

The lease term is defined as;

A)the period for which the lessee agreed.
B)the non-cancellable term in the agreement.
C)the non-cancellable term plus any possible extensions.
D)the non-cancellable lease term plus any possible extensions that are reasonably likely to be taken up.

Question 5

Under IAS 17 a lease is classified as a finance lease if it transfers more than 90% the risks and rewards incidental to ownership.

Question 6

Lessors should recognize assets held under a finance lease in their balance sheets and present them as a receivable at an amount equal to the net investment in the lease.

Question 7

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset.

Question 8

Which of the following is not a factor affecting contingent rent?

A)passage of time
B)amount of usage
C)percentage of sales
D)future price indices

Question 9

Net investment in the lease is the gross investment in the lease discounted at the interest rate prevailing in the market at the time of commencing the lease.

Question 10

A machine has a useful life of 4 years and a cash value of €12,000.Company A leases the machine for €300 per month in advance and the lease is cancellable.Company B leases the machine for 8 half yearly payments in advance of €2,250.Company C leases the machine for 6 half yearly payments in advance of €1,800.Company D leases the machine for 4 half yearly payments in advance of €1,250.Which of these should be classified as a finance lease?

A)Company A
B)Company B
C)Company C
D)Company D