Lease accounting

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. An entity has leased an asset over a 3-year period and its right of use and liability value is USD12 million. The interest charged over the 3-year period amounts to USD1.8 million which is USD0.9 million in year 1, USD0.6 million in year 2 and USD0.3 million in year 3. Straight line amortisation is used by the entity. If the asset is classified as type A, what will be the charge to profit or loss for the 3 year lease period?

  2. If the asset is classified as type B, what will be the charge to profit or loss for the 3-year lease period?

  3. What would be the lease liability under type A and type B leases at the end of year 1 and year 2?

  4. What would be the value of the asset in the statement of financial position for type B leases at the end of years 1 and 2?

  5. What would be the value of the asset in the statement of financial position for type A leases at the end of years 1 and 2?

  6. At the commencement of the lease, leases should be classified as either Type A or Type B under the new ED. What is the definition of type A and type B leases?

  7. Under what circumstances would Type B leases not be classified as such?

  8. At the start of the lease, a lessor would de-recognise the asset and recognise certain items in the financial statements. Which of the following would not be recognised in the financial statements?

  9. Leases of assets that are not property would normally be classified as Type A leases. Under what conditions would they not be classified as type A leases?

  10. The ED will not apply to certain leases. Which of the following lease types will the ED apply to?