An essential element in a lease agreement is that the lessor transfers less than the total interest

in the property
Executory costs include insurance, maintenance and property taxes
The following are all possible advantages of leasing:
1. Protection against obsolescence
2. Cheaper financing
3. 100% financing at fixed rates
The following best describes current standards in accounting for leases:
1. Leases similar to instalment purchases are capitalized
The following is a correct statement regarding one of the ASPE capitalization criteria:
1. The lease term is 75% or more of the leased propertys estimated economic life
For a lessee, the minimum lease payments may include the minimum rental payments, a bargain
purchase option, and a guaranteed or unguaranteed residual value
In calculating the present value of the minimum lease payments, IFRS requires the lessee should
use the interest rate implicit in the lease whenever this is reasonably determinable, otherwise
use the lessees incremental borrowing rate
Regarding a basic capital (finance) lease for a lessee, the following statement is incorrect:
1. The lessor uses the lease as a source of funding
When a lessee is accounting for a capital (finance) lease a guaranteed residual value is basically
an additional lease payment due at the end of the lease
In calculating depreciation of a leased asset, the lessee should subtract a guaranteed residual
value and depreciate over the term of the lease
In the earlier years of a lease, from the lessees perspective, accounting for a leased asset as a
capital lease will cause debt to increase, compared to accounting for it as an operating lease
For companies engaged in direct financing leases (called other financing leases under IFRS)
their objective is to earn interest income on the financing arrangement with the lessee
For a lessor, the following would NOT be included in the Gross Investment in Lease (Lease
Payments Receivable):
1. Executory costs
In a lease that is appropriately recorded as a direct financing lease (other financing lease) by the
lessor, the unearned interest or finance income is amortized and taken into income over the
lease term using the effective interest method
For a sales-type lease (called a manufacturer or dealer lease in IFRS), the gross profit will be the
same whether the residual value is guaranteed or unguaranteed
Initial direct costs are deferred and allocated over the term of an operating lease in proportion
to the amount of rental (lease) income that is recognized
The obligations under capital leases should be disclosed as the current portion in current
liabilities and the remainder in noncurrent liabilities

The following statement is correct regarding the contract-based approach advocated by the
IASB and FASB:
1. The asset taken on by the lessee is viewed as the contractual right to the use the asset,
not the transfer of the asset itself
If a corporation adhering to IFRS sells machinery and then leases it back (sale-leaseback) as a
finance lease, any gain on the sale should be deferred and recognized as income over the term
of the lease
If land is the sole property leased, and title does not transfer at the end of the lease, it should be
accounted for as an operating lease