International Accounting
5th Edition
ISBN: 9781260466492
Author: Doupnik, Timothy
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 5, Problem 39EP
On January 1, Year 1, Autonomous Systems Ltd. (ASL) signed a contract to lease computer equipment from Lenovo for three years. The lease agreement requires ASL to pay $30,000 at the end of each year of the lease. The company’s borrowing rate is 6 percent. Under U.S. GAAP, the lease would be classified as operating. However, ASL is based in Singapore and will account for the lease using IFRS 16.
Required:
- a. Compute the value of the lease liability that ASL will record under IFRS 16 on January 1, Year 1.
- b. In each year of the lease, ASL will record
depreciation expense on the leasehold asset and interest expense on the lease obligation. Compute the amount of the two expenses in the lease’s first year. - c. ASL is partially backed by a U.S. venture capital fund that would like to know how the lease would be accounted for under U.S. GAAP. How much expense would ASL recognize for the lease if it were a U.S. company and how does this amount differ from the total lease expense recognized under IFRS?
- d. How will the lease affect operating cash flow and how would it affect operating cash flow under U.S. GAAP? Assume that ASL classifies interest paid as a financing flow in its statement of
cash flows .
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On January 1, year 1, Cenron Systems Ltd. (CSL) assigned a contract to lease computer equipment from Dell for three years. The lease agreement requires CSL to pay $45,000 at the end of each year of the lease. The company´s borrowing rate is 6.5%. Under U.S. GAAP, the lease would be classified as operating. However, CSL is based in Singapore and will account for the lease using IFRS 16.
a) Compute the value of the lease liability that CSL will record under IFRS 16 on January 1, Year 1:
b) In each year of the lease, CSL will record depreciation expense on the leasehold asset and interest expense on the lease obligation. Compute the amount of the two expenses in the lease´s first year:
c) CSL is partially backed by U.S. venture capital fund that would like to know how the lease would be accounted for under U.S. GAAP. How much expense would CSL recognize for the lease if it were a U.S. company during the first year?:
please explain!
Ludwick Steel SA, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2019. Annual rental payments of €40,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Ludwick's incremental borrowing rate is 8%. Ludwick is unaware of the rate being used by the lessor. At the end of the lease, Ludwick has the option to buy the equipment for €5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no residual value. Ludwick uses the straight-line method of depreciation on similar owned equipment. Ludwick ends fiscal year at December 31.
Present value of an annuity-due of 1 for 5 periods at 8% is 4.31213.
Present value of an annuity-due of 1 for 5 periods at 6% is 4.46511.
Present value of a single-sum of 1 for 5 periods at 8% is 0.68058.
Instructions
a. Prepare the journal entries that Ludwick should…
2. A company signs a lease that results in a $200 Operating Lease Asset and a $200 Operating Lease Liability appearing on its Balance Sheet. Its fixed annual cash rental payment is $25 per year, and it uses a Discount Rate of 6% for this lease, which has a term of 10 years.After one (1) year passes, how will this company’s Total Assets DIFFER under the U.S. GAAP vs. IFRS treatments of Operating Leases? Assume a 25% tax rate.a. They’ll be the same because under both accounting systems, the Operating Lease Asset for a single lease decreases by the same amount each year.b. Under IFRS, Total Assets will be lower by $5.c. Under IFRS, Total Assets will be lower by $3.d. Under IFRS, Total Assets will be lower by $1.
Chapter 5 Solutions
International Accounting
Ch. 5 - Prob. 1QCh. 5 - Prob. 2QCh. 5 - 3. What is a constructive obligation?
Ch. 5 - Prob. 4QCh. 5 - Prob. 5QCh. 5 - Prob. 6QCh. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 10Q
Ch. 5 - 11. What are the rules related to the recognition...Ch. 5 - Prob. 12QCh. 5 - Prob. 13QCh. 5 - What are the five steps that entities take to...Ch. 5 - Prob. 15QCh. 5 - Prob. 16QCh. 5 - Prob. 17QCh. 5 - What is breakage revenue?Ch. 5 - What are the three categories of financial assets...Ch. 5 - Prob. 20QCh. 5 - Prob. 21QCh. 5 - What is the primary difference between how IFRS...Ch. 5 - Prob. 23QCh. 5 - Prob. 24QCh. 5 - Prob. 25QCh. 5 - Prob. 26QCh. 5 - Prob. 27QCh. 5 - A cement manufacturer has cement plants around the...Ch. 5 - Prob. 29QCh. 5 - How much revenue must be generated by a companys...Ch. 5 - How is a major customer defined?Ch. 5 - 1. Halifax Corporation has a December 31 fiscal...Ch. 5 - 2. Bull Arm Company has the following items at...Ch. 5 - 3. Melbourne Inc. became involved in a tax dispute...Ch. 5 - Prob. 4EPCh. 5 - Prob. 5EPCh. 5 - Prob. 6EPCh. 5 - Prob. 7EPCh. 5 - 8. Sandoval Company operates in a country in which...Ch. 5 - Which of the following is a criterion that must be...Ch. 5 - Prob. 10EPCh. 5 - Siam Financial Corp. (SFC) actively trades bonds...Ch. 5 - A 3 million loan paying annual interest at a 5...Ch. 5 - Monterrey Properties enters into a 3-year lease...Ch. 5 - 10. An entity must adjust its financial statements...Ch. 5 - Prob. 15EPCh. 5 - Prob. 16EPCh. 5 - Prob. 17EPCh. 5 - Prob. 18EPCh. 5 - Prob. 19EPCh. 5 - Prob. 20EPCh. 5 - Prob. 21EPCh. 5 - Prob. 22EPCh. 5 - Prob. 23EPCh. 5 - Prob. 24EPCh. 5 - Prob. 25EPCh. 5 - Prob. 26EPCh. 5 - Prob. 27EPCh. 5 - Prob. 28EPCh. 5 - Prob. 29EPCh. 5 - Prob. 30EPCh. 5 - Prob. 33EPCh. 5 - Prob. 34EPCh. 5 - Prob. 35EPCh. 5 - Prob. 36EPCh. 5 - Prob. 37EPCh. 5 - Prob. 38EPCh. 5 - On January 1, Year 1, Autonomous Systems Ltd....Ch. 5 - Prob. 40EPCh. 5 - Prob. 41EPCh. 5 - Prob. 42EP
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