27 Lecture

1. How does IAS 17 classify leases? A. Finance leases only B. Operating leases only C. Both finance and operating leases

Answer: C. Both finance and operating leases

2. What is the key factor in determining whether a lease is a finance lease or an operating lease? A. The length of the lease term B. The residual value of the leased asset C. The transfer of risks and rewards of ownership

Answer: C. The transfer of risks and rewards of ownership

3. How are lease payments allocated under a finance lease? A. Only to interest expense B. Only to reduction of the lease liability C. To both interest expense and reduction of the lease liability

Answer: C. To both interest expense and reduction of the lease liability

4. How are lease payments recognized under an operating lease? A. As an asset on the balance sheet B. As a liability on the balance sheet C. As an expense on the income statement

Answer: C. As an expense on the income statement

5. What is the treatment for lease incentives under IAS 17? A. Recognized as a reduction in lease payments B. Recognized as an asset on the balance sheet C. Recognized as a liability on the balance sheet

Answer: A. Recognized as a reduction in lease payments

6. How is a sale and leaseback transaction accounted for under IAS 17? A. The leased asset is recognized as a finance lease B. The leased asset is recognized as an operating lease C. The leased asset is not recognized on the balance sheet

Answer: A. The leased asset is recognized as a finance lease

7. What are the disclosure requirements under IAS 17 for finance leases? A. Future minimum lease payments only B. Contingent rent payments only C. Both future minimum lease payments and contingent rent payments

Answer: C. Both future minimum lease payments and contingent rent payments

8. Can an operating lease be accounted for as a finance lease? A. Yes B. No

Answer: B. No

9. How are impairment losses on leased assets recognized under IAS 17? A. As an expense on the income statement B. As a reduction in lease payments C. As a decrease in the carrying amount of the leased asset

Answer: C. As a decrease in the carrying amount of the leased asset

10. When must an entity reassess the classification of a lease under IAS 17? A. Only if there is a change in the lease term B. Only if there is a change in the lease payments C. If there is a change in the terms and conditions of the lease

Answer: C. If there is a change in the terms and conditions of the lease

1. What is the difference between a finance lease and an operating lease under IAS 17? Answer: The key difference between a finance lease and an operating lease is whether the risks and rewards of ownership are transferred to the lessee. In a finance lease, the lessee bears most of the risks and rewards of ownership, while in an operating lease, the lessor retains most of these risks and rewards.

2. How are lease incentives treated under IAS 17? Answer: Lease incentives are recognized as a reduction in lease payments and amortized over the lease term.

3. What is the journal entry to record a lease payment under a finance lease? Answer: Debit lease liability and interest expense, credit cash.

4. How is the lease term determined under IAS 17? Answer: The lease term is the non-cancellable period for which the lessee has the right to use the leased asset, plus any periods covered by a lessee's option to extend the lease if it is reasonably certain to be exercised.

5. What is the accounting treatment for subleases under IAS 17? Answer: Subleases are accounted for in the same way as the original lease, with the sublessor acting as the lessor and the sublessee acting as the lessee.

6. Can an entity recognize a gain on a sale and leaseback transaction under IAS 17? Answer: Yes, an entity can recognize a gain on a sale and leaseback transaction only if the sale is at fair value and the lease is an operating lease.

7. What are the disclosure requirements for finance leases under IAS 17? Answer: The disclosure requirements for finance leases include the future minimum lease payments, the contingent rent payments, and a general description of the lease terms.

8. How are lease payments allocated under an operating lease? Answer: Lease payments under an operating lease are recognized as an expense on the income statement over the lease term.

9. Can a finance lease be accounted for as an operating lease under IAS 17? Answer: No, a finance lease cannot be accounted for as an operating lease under IAS 17.

10. How are impairment losses on leased assets recognized under IAS 17? Answer: Impairment losses on leased assets are recognized as a decrease in the carrying amount of the leased asset and charged to the income statement.

IAS 17 (Leases) is a standard that governs the accounting treatment of lease transactions. The standard distinguishes between two types of leases: finance leases and operating leases. In a finance lease, the lessee recognizes the leased asset and the associated liability on its balance sheet. The lease payments are split between a repayment of the principal and an interest expense, which are recognized on the income statement. In an operating lease, the lessee recognizes the lease payments as an expense on the income statement over the lease term. The standard also provides guidance on the determination of the lease term, the treatment of lease incentives, and the disclosure requirements for lease transactions. It requires that the lease term should include any periods covered by a lessee's option to extend the lease if it is reasonably certain to be exercised. Lease incentives, such as rent-free periods or cash payments, are recognized as a reduction in lease payments and amortized over the lease term. Additionally, IAS 17 provides guidance on subleases and sale and leaseback transactions. Subleases are accounted for in the same way as the original lease, with the sublessor acting as the lessor and the sublessee acting as the lessee. Sale and leaseback transactions are only recognized as a gain if the sale is at fair value and the lease is an operating lease. Impairment losses on leased assets are recognized as a decrease in the carrying amount of the leased asset and charged to the income statement. The disclosure requirements for finance leases include the future minimum lease payments, the contingent rent payments, and a general description of the lease terms. In summary, IAS 17 provides guidance on the accounting treatment of lease transactions, including finance leases and operating leases, lease incentives, subleases, sale and leaseback transactions, impairment losses, and disclosure requirements. Adherence to the standard ensures that lease transactions are accurately recorded, and their impact on the financial statements is appropriately reflected.