18. Which of the following lease arrangements would most likely be accounted for as a finance lease by the lessor if it is under US GAAP instead of IFRS? * a. The lease agreement runs for 15 years and the economic life of leased property is 20 years. However, the title is not transferred to the lessee at the end of the lease term. b. The present value of future payments is P73,600 when the fair value of the property is P80,000 at the end of the first lease year. c. The lessee shoulders the gain or O loss from fluctuation in the fair value of the underlying asset. d. The lessee may renew the two- year lease for two additional years; originally the lease payments were P10,000 monthly. Renewed lease term calls for P11,000 monthly rental payment.

18. Which of the following lease arrangements would most likely be accounted for as a finance lease by the lessor if it is under US GAAP instead of IFRS? * a. The lease agreement runs for 15 years and the economic life of leased property is 20 years. However, the title is not transferred to the lessee at the end of the lease term. b. The present value of future payments is P73,600 when the fair value of the property is P80,000 at the end of the first lease year. c. The lessee shoulders the gain or O loss from fluctuation in the fair value of the underlying asset. d. The lessee may renew the two- year lease for two additional years; originally the lease payments were P10,000 monthly. Renewed lease term calls for P11,000 monthly rental payment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Which of the following is not one of the criteria for determining whether a lease is a finance lease? A. The asset cost is greater than $100,000B. The lease grants the lessee an option to purchase the asset that the lessee is reasonably certain to exerciseC. The lease term is for the major part of the remaining economic life of the assetD. Alease that transdies ownership of the asset to the lessee by the end of the lease term
1- Oman Construction Leasing Company SAOG (OCLC), a subsidiary of Muscat Grant Corporation signed a lease agreement with Muscat Mist Infustructure Companyon January 2020. The leasing company will provide drilling equipment according to following conditions: The term of lease is up to December 2023. The Lease agreement is non-cancelable and requiring equal rental payment of 200,000 OMR at the beginning of each year (Annuity due basis). Muscat Mist has approval for renewal before maturity for two times. The equipment has a fair value at the time of Lease Agreement was around OMR 980000OMR and an economic life of 2 years and no residual value.Muscat Mist pays all the executory costs directly to the third party except for the property tax of OMR 1500 per year which is included as a part of its annual payment to OOLC.Muscat MistInfustructure incremental borrowing rate is 12% per year.Muscat Mist depreciates similar equipment that it owns at a straight ling method depreciation.The targeted…
Blue Company is recording a capital lease (usually called a finance lease under IFRS) and is aware that the implicit interest rate used by the lessor to calculate lease payments is 8%. Blue’s incremental borrowing rate is 7%. Blue should record the leased asset and lease liability at the present value of the lease payments discounted at a. 7% if using either U.S. GAAP or IFRS. b. 7% if using IFRS. c. 8% if using U.S. GAAP. d. 8% if using IFRS.
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For which of the following conditions will the lessor classify a lease as a sales-type lease? a.The leased asset may be exchanged for a similar asset during the lease term. b.The present value of the sum of the lease payments is equal to or more than the fair value of the underlying asset. c.The lease term is less than one year. d.The lease term is half of the underlying asset’s economic life.
On 1 March 2020,the company entered into a lease agreement in order to lease a manufacturing machine with a costprice of R250 000 (VAT inclusive). The period of the lease is five years, and the useful life of the machinery is estimatedat six years. The following is an extract from the lease agreement:4.1.1 Ownership of the machinery will be transferred to the Lessee at the end of the lease.4.1.2 Should the Lessee cancel the lease, the Lessor’s losses will be borne by the Lessee.Monthly instalments are payable in arrears and amount to R5 947 (VAT inclusive). The company used themanufacturing machine for a qualifying purpose. The company is a registered VAT vendor.Required:Provide the deferred tax movement per the balance sheet method for the lease agreement for the financial year ending31 December 2021. Clearly indicate whether the movement represents an income or an expense. Note:- Show all calculations, marks are awarded for calculations.- You may round off to the nearest Rand.
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