Lease accounting standard: the story so far

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 existing lease standard, IAS 17 Leases, has been criticised for failing to meet the needs of users of financial statements. With which one of the concepts set out in the IASB Framework does IAS 17 principally conflict?

  2. The Exposure Draft (ED)- Leases (May 2013) attempted to solve the lease accounting problem by requiring an entity to classify leases into two types-type A and type B and recognise both types on the statement of financial position. Which of the following leases would be classified as type A leases?

  3. The Exposure Draft (ED) - Leases (May 2013) attempted to solve the lease accounting problem by requiring an entity to classify leases into two types-type A and type B and recognise both types on the statement of financial position. Which of the following leases would be classified as type B leases?

  4. At the commencement date of the lease under the ED (May 2013), the lessee discounts the lease payments using the rate the lessor charges the lessee, or if that rate is unavailable, the incremental borrowing rate of the lessee. What is the accounting entry for the recognition of the lease in the statement of financial position of the lessee?

  5. At the commencement date of the lease under the ED May 2013, the lessee discounts the lease payments using the rate the lessor charges the lessee, or if that rate is unavailable, the incremental borrowing rate. What is the accounting entry in profit or loss, in the records of the lessee, for the recognition of type A and B leases?

  6. Following the feedback received on the ED, there has been some disagreement by the FASB and IASB as regards the way in which leases should be accounted for. Which of the following best summarises the current position?

  7. The Boards decided that a lessor should determine lease classification (Type A or Type B) on the basis of whether the lease is effectively a financing or a sale, rather than an operating lease. On what basis would the lessor principally make that decision?

  8. A lease is currently defined by the Boards as a contract that conveys the right to use an asset for a period of time in exchange for consideration. How would an entity determine whether a contract contains a lease?

  9. The Boards have decided several matters for inclusion in the new IFRS on leases. Which of the following is not likely to be part of the new leasing guidance?

  10. A lease modification for both a lessee and a lessor should be accounted for as a new lease, separate from the original lease. Under what circumstances would the lease modification be accounted for as a new separate lease?