FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN Equipment Ltd on 1 January 2015. The lease consists of the following: Date of inception: Duration of lease: 1/1/15 4 years 5 years $550 000 (annual) which includes $80 000 for Maintenance and insurance costs per annum. • Life of leased asset: • Lease payments (annual): Guaranteed residual value (Added to final payment): • Interest rate: $190 000 7% Formula for PV of $1 in n periods =1/(1+k)^ 1-1/(1+k)* Formula for present value of annuity of $1 per period for n periods = - k where, k is the discount rate expressed in decimal

FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN Equipment Ltd on 1 January 2015. The lease consists of the following: Date of inception: Duration of lease: 1/1/15 4 years 5 years $550 000 (annual) which includes $80 000 for Maintenance and insurance costs per annum. • Life of leased asset: • Lease payments (annual): Guaranteed residual value (Added to final payment): • Interest rate: $190 000 7% Formula for PV of $1 in n periods =1/(1+k)^ 1-1/(1+k)* Formula for present value of annuity of $1 per period for n periods = - k where, k is the discount rate expressed in decimal

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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Part 1: New Lease Accounting – IFRS 16 Leases Effect Analysis. What are the top three industries most affected by IFRS 16 as measured by the present value of future payments for off-balance-sheet leases to total assets? Which leased assets propel them to the top three? Also, discuss the extent that smaller firms would be affected by IFRS 16. Which payments are to be included in the measurement of lease assets and lease liabilities? Also, discuss the pros and cons of excluding the following payments from the measurement. Variable lease payments linked to future use or sales Optional payments relating to lease-extension option when a lessee is not reasonably certain to exercise the option. Discuss the effects of the new accounting on the following items and ratios of lessees. Provide reason(s) behind all effects. EBITDA, operating profit, and profit before tax Operating cash flow, financing cash flow, and total cash flow Debt to equity, current ratio, and return on total assets
When a lessor receives cash on an operating lease, which of the following accounts is increased? A. Lease Payable B. Interest Revenue: Leases C. Lease Receivable D. Rent Revenue
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Discuss the financial statement disclosure requirements for all leases entered into by the lessor. Essay Toolbar navigation BIUS == ווין IVI MM !!!
Under IFRS 16, lessors are required to account for lease receipts from operation leases as a. Income, on a straight-line basis over the lease term b. Revenue, on a reducing balance basis over the lease term c. Revenue, at the end of lease term d. Income, on inception date of the lease
Accounting for liabilities involves recording and managing obligations a company owes to external parties. Liabilities are classified based on their nature and timing of settlement. Common types include: Current Liabilities: Debts or obligations expected to be settled within one year or the operating cycle, whichever is longer. Examples include accounts payable, accrued expenses, and short-term loans. Long-Term Liabilities: Obligations not due within the next operating cycle or one year. Examples include long-term loans, bonds payable, and lease obligations. Contingent Liabilities: Potential obligations that depend on a future event, such as lawsuits or warranties. They are disclosed in the footnotes of financial statements unless the likelihood of payment is remote. Deferred Revenue: Payments received in advance for goods or services to be provided in the future. They are recorded as liabilities until the revenue recognition criteria are met. Accrued Liabilities: Expenses…
Part 1: New Lease Accounting – using IFRS 16 Leases Effect Analysis. Which payments are to be included in the measurement of lease assets and lease liabilities? Also, discuss the pros and cons of excluding the following payments from the measurement. - Variable lease payments linked to future use or sales - Optional payments relating to lease-extension option when a lessee is not reasonably certain to exercise the option.