Leases and transition to IFRS

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. There are certain criteria, which help to determine the classification of a lease. Which of the following criteria is not normally used in determining the classification of a lease?

  2. Which of the following statements is untrue as regards the accounting for an operating lease?

  3. The IASB has amended the specific guidance regarding classification of leases of land. As a result, how should leases of land be dealt with?

  4. How can leases of land and buildings that meet the definition of investment property under IAS 40 be dealt with?

  5. Lessors sometimes provide incentives for lessees to enter into operating leases. How should the incentive be dealt with in the financial statements?

  6. A public body has outsourced its highways maintenance to a private sector provider. The private sector provider has purchased certain vehicles which are used exclusively for the public body. The public body can use the vehicles and the vehicles are used in this connection for the major part of the assets life. How is this arrangement likely to be dealt with in the public body's financial statements?

  7. There are no explicit exemptions or exceptions in IFRS 1 from retrospective application of IAS 17 Leases. A first-time adopter is therefore required to recognise all assets held under finance leases at the date of transition. What election can an entity make at the date of transition as regards leases

  8. An entity paid a premium of $9m for a lease of property in 2008. This was capitalised as a fixed asset under local GAAP. At the date of transition to IFRS, 1 January 2010, the asset had been revalued to $14m. The entity determines that at 1 January 2010, the relative values of the land and buildings were $4m for the land and $10m for the buildings. The entity has determined that the building is a finance lease and the land is an operating lease. At what value will the building asset be stated if the fair value as deemed cost exemption is used?

  9. How does a lessor recognise a finance lease in its financial records?

  10. How does a lessee recognise a finance lease in its financial records?