Testbank

to accompany

Applying International
Accounting Standards
by
Alfredson, Leo, Picker, Pacter & Radford
Prepared by
Victoria Wise

John Wiley & Sons Australia, Ltd 2005

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CHAPTER 12 Leases
Question 1
According to IAS 17 Leases, because lease payments are made over the lease term, the payments
must be divided into the following components:
Reduction of the lease liability
Interest expense incurred
Reimbursement of lessor costs
Receipt of lease incentives

A
B
C
D

I
II
Yes Yes
Yes No
Yes Yes
No No

III IV
No Yes
Yes No
Yes No
Yes Yes

I;
II;
III;
IV.

Question 2
In relation to finance leases, the following information must be disclosed separately in the
financial statements of lessors:
I.
II.
III.
IV.
A
B
C
D

Unearned finance income.

Contingent rents recognised as income in the period.
The unguaranteed residual values accruing to the benefit of the lessee.
The accumulated allowance for uncollectible minimum lease payments
receivable.

I, II and IV only;
I, III and IV only;
II, III and IV only;
II and IV only.

Question 3
When substantially all of the risks and rewards incident to ownership remain with the lessor, the
arrangement is treated as:
A
B
C

an operating lease;
a finance lease;
a sale and leaseback;

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a non-lease, rental arrangement.

Question 4
Under IAS 17 Leases, lessors are required to account for lease receipts from operating leases as:
A
B
C
D

revenue, on a reducing balance basis over the lease term;

income, on inception date of the lease;
income, on a straight-line basis over the lease term;
revenue, at the end of the lease term.

Question 5
Adam Limited and Davies Limited enter into a finance lease agreement with the following terms:
lease term is 3 years
estimated economic life of the leased asset is 6 years
3 x annual rental payments of $23 000; each payment is one year in arrears
residual value at the end of the lease term is not guaranteed by the lessee
interest rate implicit in the lease is 7%

On inception date, the present value of the minimum lease payments is:
A
B
C
D

$69 000;
$64 584;
$64 170;
$60 359.

Question 6
In respect to non-cancellable operating leases, lessees are required under IAS 17 Leases, to
disclose the total of future minimum lease payments for each of the following periods:
A
B
C
D

not later than 3 months;

later than 3 months and not later then 6 months;
later then 6 months and not later than 9 months;
not later than one year.

Question 7
With respect to operating leases, lessors are required under IAS 17 Leases, to make the following
disclosures:

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I.
II.
III.
IV.

Total contingent rents recognised as income in the period.

Future minimum lease payments under individual, cancellable operating leases, separately.
A general description of the lessees leasing arrangements.
Future minimum lease payments under non-cancellable operating leases in aggregate.
A
B
C
D

I, II and III only;

I, III and IV only;
II and III only;
I, II and IV only.

Question 8
A lessee when accounting for a lease incentive received under an operating lease treats is as a:
A
B
C
D

increase in rental income over the lease term;

increase in rental expense over the lease term;
reduction in rental expense over the lease term;
reduction in rental income over the lease term;

Question 9
Burgess Limited accepts a lease incentive to enter into a 3-year operating lease for a building.
The incentive is a cash amount of $5 000 received on signing of the lease agreement. The lessee
initially records this transaction as follows:
A
B
C
D

DR
CR
DR
CR
DR
CR
DR
CR

Lease expense
$5 000
Cash
Incentive from lessor $5 000
Cash
Incentive to lessee
$5 000
Rent income
Cash
$5 000
Lease incentive from lessor

$5 000;
$5 000;
$5 000;
$5 000.

Question 10
Timely Limited accepts a lease incentive to enter into a 4-year operating lease for equipment.
The incentive is cash amounting to $10 000 that will be paid on the date the lease agreement is
signed. On inception of the lease, the lessor will record:
A

DR Cash
$10 000
CR
Incentive to lessee

$10 000;

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C
D

DR Incentive to lessee
CR
Cash
DR Rent income
CR
Rent expense
DR Cash
CR
Rent income

$10 000
$10 000;
$10 000
$10 000;
$10 000
$10 000.

Question 11
A lease transaction that involves the sale of an asset that is then leased back to the seller for all or
part of its remaining economic life is known as:
A
B
C
D

a sale and leaseback;

a novated lease;
an operating lease;
a leveraged lease.

Question 12
If a sale and leaseback transaction results in a finance lease, IAS 17 Leases, provides the
following accounting treatment for any excess of sales proceeds over the carrying amount:
A
B
C
D

recognise directly in retained earnings of the seller-lessee;

immediately recognise as income by the seller-lessee;
defer and amortise over the lease term;
include in the capitalised amount of the leased asset.

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ANSWERS
1

10

11

12

Applying International Accounting Standards Chapter 12