MCQ LEASES – 2ND OCTOBER 2022

1. Which of these represents the new accounting treatment for lessees under IFRS 16?
A. All leases must be depreciated over a maximum of 5 years
B. Recognise operating lease income on a straight line basis
C. All lease liabilities recognised on the statement of financial position
D. An entity must disclose if they are choosing to continue using operating leases

2. What is the key determinant of the accounting treatment of a sale and leaseback?
A. Whether the transaction is an operating or finance lease
B. Whether the transfer constitutes a sale per IFRS 15
C. Whether the lease payments constitute substantially all of the asset's fair value
D. Whether the leaseback is the majority of the useful life

3. Where the leaseback contains variable payments, at what value should the ROU asset be recorded in the
books of the seller-lessee?
A. At the previous carrying amount prior to the leaseback arrangement
B. Zero, as the payments do not qualify as part of the lease liability
C. At the rights retained by the seller-lessee
D. At the rights transferred to the buyer-lessor

4. Which of the following is the correct treatment for a sale and leaseback if the transaction does NOT
constitute a sale per IFRS 15?
A. The proceeds are held as a finance liability
B. A gain is recognised representing the right of use transferred to the buyer-lessor
C. None of the above
D. A gain is recognised as the difference between proceeds and carrying amount of the asset

5. Which, if any, of the following statements regarding IFRS 16 for lessees is correct? Statement 1 - Leases
less than 12 months can be expensed on a straight-line basis, or Statement 2 - Lessees can choose to
expense items in either depreciation or finance costs
A. Statement 1 only is correct
B. Statement 2 only is correct
C. Neither statement is correct
D. Both statements are correct

6. Which, if any, of the following statements is correct? Statement 1 - The sale and leaseback with variable
payments issue only exists where the transaction does not qualify as a sale per IFRS 15 Statement 2 -
The ROU asset under a sale and leaseback is recorded at the proportion of the proceeds remaining with
the seller-lessee
A. Neither statement is correct
B. Both statements are correct
C. Statement 2 only is correct
D. Statement 1 only is correct

7. Which of the following represents the new accounting treatment for lessors under IFRS 16?
A. Lessor accounting is no longer permitted under IFRS 16
B. There is no change to lessor accounting compared to IAS 17
C. All lease income must be recorded in the statement of profit or loss, regardless of the length of the lease
D. All lease assets must be recorded, whether it is an operating or finance lease

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8. On 1 January 20X6 Fellini hired a machine under a finance lease. The cash price of the machine was
$3.5 million and the present value of the minimum lease payments was $3.3 million. Instalments of
$700,000 are payable annually in advance with the first payment made on 1 January 20X6. The interest
rate implicit in the lease is 6%.
What amount will appear under non-current liabilities in respect of this lease in the statement of
financial position of Fellini at 31 December 20X7?
A. $1,479,000
B. $2,179,000
C. $1,702,000
D. $2,266,000

9. A company acquired an item of plant under a finance lease on 1 April 20X7. The present value of the
minimum lease payments was $15.6 million and the rentals are $6 million per annum paid in arrears for
three years on 31 March each year. The interest rate implicit in the lease is 8% per annum.
What amount will appear under current liabilities in respect of this lease in the statement of financial
position at 31 March 20X8?
A. $5,132,000
B. $5,716,000
C. $6,000,000
D. $4,752,000

10. Which of the following situations does not suggest that a leasing arrangement constitutes a finance
lease?
A. The present value of the minimum lease payments is substantially less than the fair value of the asset.
B. Ownership in the asset is transferred at the end of the lease term.
C. The lease term is for a major part of the asset's useful life.
D. The lease contains a purchase option at a price below fair value, which is reasonably certain to be
exercised.

11. At what amount does IAS 17 Leases require a lessee to capitalise an asset acquired under a finance
lease?
A. Cash price of the asset
B. Fair value of the asset
C. Present value of minimum lease payments
D. Lower of fair value and present value of minimum lease payments

12. On 1 April 20X7, Fino increased the operating capacity of its plant. Due to a lack of liquid funds it was
unable to buy the required plant which had a cost of $350,000. On the recommendation of the finance
director, Fino entered into an agreement to lease the plant from the manufacturer. The lease required
four annual payments in advance of $100,000 each commencing on 1 April 20X7. The rate of interest
implicit in the lease is 10%. The plant would have a useful life of four years and would be scrapped at
the end of this period. The finance director believes the lease to be an operating lease. (Information
relevant to questions 12.1 to 12.3)
12.1 Assuming this is a finance lease, what is the total charge to profit or loss for the year ended 30
September 20X7 in respect of the plant?
A. $12,500
B. $25,000
C. $56,250
D. $68,750

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12.2 The finance director thinks this an operating lease. Which TWO of the following, if true, would
indicate that it was an operating lease?
(i) Ownership is transferred at the end of the lease term.
(ii) The lease is for a short part of the asset's life.
(iii) The present value of the minimum lease payments is considerably less than the asset's fair value.
(iv) The asset has been specially adapted for the use of the lessee.

A. (i) and (ii)

B. (ii) and (iii)
C. (iii) and (iv)
D. (i) and (iv)

12.3 What is the amount that should be shown under non-current liabilities at 30 September 20X7 in
respect of this plant?
A. $175,000
B. $262,500
C. $250,000
D. $100,000

13. The objective of IAS 17 Leases is to prescribe the appropriate accounting treatment and required
disclosures in relation to leases.
Which TWO of the following situations would normally lead to a lease being classified as a finance
lease?

A. The lease transfers ownership of the asset to the lessee by the end of the lease term
B. The lease term is for approximately half of the economic life of the asset
C. The lease assets are of a specialised nature such that only the lessee can use them without major
modifications being made
D. At the inception of the lease, the present value of the minimum lease payments is 60% of what the
leased asset would cost to purchase

14. A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. If
the lease arrangement results in a finance lease, how should any 'profit' on the sale be treated?
A. Recognise immediately in profit or loss
B. Defer and amortise over the lease term
C. Any excess above fair value to be deferred and amortised, rest to be recognised in profit or loss
D. No profit should be recognized

15. At the commencement of a finance lease, IAS17 requires that the lessee should recognise both an asset
and a liability to the lessor. These should be measured at:
A. The lower of the fair value of the leased item and the present value of the minimum lease payments
B. The fair value of the leased item
C. The present value of the minimum lease payments
D. The higher of the fair value of the leased item and the present value of the minimum lease payments

16. On 1 January 2018, a company which prepares financial statements to 31 December each year acquires a
machine on a finance lease. The fair value of the machine on 1 January 2018 is £50,000 and the
company is required to make three lease payments of £19,753 each. These payments fall due on 31
December 2018, 2019 and 2020. The rate of interest implicit in the lease is 9% per annum. Calculate the
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 finance charge which should be shown in the company's financial statements for the year to 31
December 2018 if the total finance charge is allocated to accounting periods using the level spread
method.
A. £3,086
B. £9,259
C. £4,500
D. £19,753
 
17. On 1 January 2018, a company which prepares financial statements to 31 December each year acquires a
machine on a finance lease. The fair value of the machine on 1 January 2018 is £50,000 and the
company is required to make three lease payments of £19,753 each. These payments fall due on 31
December 2018, 2019 and 2020. The rate of interest implicit in the lease is 9% per annum. Calculate the
finance charge which should be shown in the company's financial statements for the year to 31
December 2018 if the total finance charge is allocated to accounting periods using the sum of digits
method.
A. £4,629
B. £3,086
C. £9,259
D. £4,500

18. When a lease transfers substantially all the risks and rewards of ownership to lessee, this is called…
A. A finance lease
B. An operating lease
C. A compound lease
D. An obligation to buy lease

19. A leased asset should be depreciated over the…

A. Shorter of the lease term and the asset’s useful life
B. Longer of the lease term and the asset’s useful life
C. Entire lease term
D. Useful life of the asset

20. On 1 January 2018, a company which prepares financial statements to 31 December each year acquires a
machine on a finance lease. The fair value of the machine on 1 January 2018 is £50,000 and the
company is required to make three lease payments of £19,753 each. These payments fall due on 31
December 2018, 2019 and 2020. The rate of interest implicit in the lease is 9% per annum. Calculate the
finance charge which should be shown in the company's financial statements for the year to 31
December 2018 if the total finance charge is allocated to accounting periods using the actuarial method.
A. £4,500
B. £4,629
C. £3,086
D. £9,259

21. Which of the following is not a disclosure requirement for finance leases:
A. Market value of asset
B. General description of significant leasing arrangements
C. Reconciliation between total minimum lease payments and their present value
D. Carrying amount of asset

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22. A company sells an asset for £800,000, which is its fair value in the market. Its carrying amount in the
SOFP was £700,000. They then contract with the purchaser to lease it back for £120,000 a year, where
the present value of the yearly payments is estimated to be £400,000. Calculate the gain or loss on the
sale of the asset to be included in the right-to-use calculation.
A. £50,000
B. £100,000
C. £300,000
D. £400,000

23. If we sell an asset (approved by IFRS 15) for more than its FV and then lease it back - what do we do
with extra we received above FV?
A. Treat it as a finance liability
B. Show it as income in the income statement
C. Defer it through comprehensive income
D. It cannot be part of a lease calculation

24. On 1 January 2018, a company which prepares financial statements to 31 December each year acquires a
machine on a finance lease. The fair value of the machine on 1 January 2018 is £50,000 and the
company is required to make three lease payments of £19,753 each. These payments fall due on 31
December 2018, 2019 and 2020. The rate of interest implicit in the lease is 9% per annum. Assuming
that the total finance charge is allocated to accounting periods using the actuarial method, calculate the
liability to the lessor at 31 December 2018 and show how this should be split between current and non-
current liabilities.
A. Total £34,747, Non-current £18,121, Current £16,626
B. Total £34,747, Non-current £16,626, Current £18,121
C. Total £32,970, Non-current £16,485, Current £16,485
D. Total £34,747, Non-current £14,994, Current £19,753