All change for accounting for leases

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. The IASB has released IFRS 16, Leases, which supersedes IAS 17 Leases. IFRS 16 eliminates the classification of leases as either operating leases or finance leases and requires a single lessee accounting model. What is the accounting treatment for lessees required by IFRS 16?

  2. Leases are measured by recognising the present value of the lease payments including any directly related costs, and showing them either as lease assets or including them with property, plant and equipment. How are leases treated in the income statement under IFRS 16?

  3. In the financial statements of lessors, leases are still classified as operating or finance leases, and are accounted for separately. What is the main change under IFRS 16 when accounting for leases in the financial statements of lessors?

  4. A lease is defined as part of a contract that conveys to the customer the right to use an asset for a period in exchange for consideration. A distinction is drawn between a lease and a service. What is the difference between a lease contract and a service contract?

  5. IFRS 16 focuses on whether a customer controls the use of an asset. Just as with 17 Leases, judgement may be required to determine whether a contract contains a lease. The identification of an asset can arise by being explicitly or implicitly specified in the contract when the asset is made available for use. What is the definition of control as regards the use of the asset set out in IFRS 16?

  6. Where an entity has a significant number of leases not recognised on the balance sheet, there will be a change in the nature of expenses related to those leases. How will the recognition of the off balance sheet leases affect the income statement?

  7. On first applying IFRS 16, entities need not reassess existing contracts to determine whether they contain a lease. What will entities have to determine when new contracts are entered into?

  8. Certain measurement simplifications have been introduced by IFRS 16. Which of the following is not a measurement simplification introduced by IFRS 16?

  9. IFRS 16 allows certain practical expedients on first application. Which of the following is not a practical expedient allowed by IFRS 16?

  10. EFRAG and National Standard Setters carried out a consultation to understand the impact of IFRS 16 on loan covenants. The results indicated a variation in practice. The survey indicated that IFRS 16 could impact covenants if certain conditions applied. Which of the following conditions IFRS 16 would not affect?