What financial reporting problems were there prior to IAS17 and IFRS16?

2. Why did leasing become popular?

3. Describe in your own words and example of “substance over form”.

4. What two balance sheet items must an entity recognize at the “commencement date” of a finance lease?

5. From Q4, for each of the two balance sheet items, what transactions reduce each of these to zero over time?

6. What general condition makes it necessary to recognize a lease as a finance lease?

7. How does the accounting treatment differ in the books of the lessee between a finance lease and an operating lease?

8. How does a lessor account for an asset that it leases?

9. Assume the following lease for a machine is a finance lease in the books of the lessee. 

● Lease period: 5 years 

● Cost of plant: £150,000 

● Annual lease payments: £35,380 (in advance) 

● Implicit interest on lease: 9% 

Required: Show: 

1. The current and non-current liabilities at the end of year one and year two. 

2. The accounting entries related to the rental payment and the interest paid in year one only. 

9. Assume the following lease for a machine is a finance lease in the books of the lessee. 

● Lease period: 4 years 

● Cost of plant: £250,000 

● Annual lease payments: £78,867 (in arrears) 

● Implicit interest on lease: 10% 

Required: Show: 

1. The current and non-current liabilities at the end of year one and year two. 

2. The accounting entries related to the rental payment and the interest paid in year one only.

Answer rating: 100% (QA)

1 What financial reporting problems were there prior to IAS17 and IFRS16 Prior to IAS17 and IFRS16 there were several financial reporting problems particularly concerning leases Financial statements f... View the full answer