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13 views

Ifrs-16 QP

Uploaded by

Zain Akhtar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

Certificate in Accounting and Finance Stage Examinations


Test-03 (IFRS-16) November 05, 2024
Section: A (Sir Nasir) 24 marks – 45 Minutes

FAR-II
Question 1
On 1 January 2022, Alfalah Leasing Company (ALC) leased a machine to Kawasaki Motors Limited
(KML) to manufacture components of a new model of vehicle, on the following terms:
(i) Non-cancellable lease period is 5 years,
(ii) The agreement contains an option for KML to extend the lease for further 3 years in which case,
lease rentals for further 3 years shall be Rs. 36 million (which is 10% lower than original rental); and
(iii) Lease rentals are payable annually in advance.

Other relevant information includes:


a) At inception of lease, ALC’s implicit rate on this transaction was 14%.
b) Economic life of the machine is 10 years.
c) Guaranteed and un-guaranteed residual value are expected at end of five years to be Rs. 8
million and Rs. 3 million respectively while at end of eight years to be is Rs. 5 million and Rs.2
million respectively.
d) At commencement of lease, KML was reasonably certain that the option to extend the term will
be exercised.
Required:
In the books of ALC, for the year ended December 31, 2022:
a) Show extracts of SOFP and SOCI.
b) Prepare a note on “Net Investment In Lease”. (10)

Question 2
Indigo Limited (IL) has established its business in 2021 as a supplier of plant and machinery. Following
information relates to a machine provided under lease during the year ended December 31, 2022:

Commencement date: January 1, 2022


Lease term: 3 years
Lease rental (payable annually in advance):
- 1st year: Rs. 4,000,000
- 2nd year: It will reduce by 20%
- 3rd year: It will reduce by 40%

Cost of machine: Rs. 15,000,000


Useful life: 6 years
IL depreciates its assets under straight line method with no residual value.

Required:
a) Prepare journal entries for above transactions for the year ended December 31, 2022. (5)
b) Prepare note to the financial statements for the year ended December 31, 2022 in accordance
with the requirements of IFRS-16 (Leases). (2)
Question 3
Cosmo Edge (CE) is an importer of new as well used machines. It sells on cash as well as lease basis.
On January 1, 2020 It sold a used machine, costing Rs. 380,000, on finance lease to a customer on following
terms:

Contract period 7 years


Termination option Lease can be terminated after 5 years paying a termination fee equal to 10% of lease
rental payable in 5th year.
Initial costs CE paid Rs. 10,000 commission to sales agent and Rs. 4,500 to local authority for this
transaction. Lessee paid Rs. 20,000 to an external consultant who verified lessee’s
financial stability.
Lease rentals No rental is payable in 2020 and 2021. A lease payment of Rs. 240,000 will be paid on
(payable in arrears) December 31, 2022. It will increase by 25% per year in each of remaining lease term.
Implicit rate 10%
Market rate 12%
Title Title will remain with CE and machine will be returned by lessee at end of lease term.

It is expected that residual value of machine at end of year 5 will be Rs. 30,000 and at end of year 7 will be Rs. 15,000.
None of the residual value is guaranteed by lessee however, a scrap dealer has guaranteed a value of Rs. 20,000 at end
of year 5 to CE.

Required:
Assuming it is reasonably certain that lessee will utilize the termination option:
(a) Journal entries for the year ending December 31, 2020. (7)

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