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Asset Based Accounting Standards: AS 19 - Leases

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53 views

Asset Based Accounting Standards: AS 19 - Leases

Uploaded by

Jaya
Copyright
© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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5.

Asset Based Accounting Standards

AS 19 - Leases
Theory Questions
Question 1 (May - 2015) (5 Marks)
Answer the following:
State any four situations when a lease would be classified as Finance Lease.

Question 2 (May - 2022) (5 Marks)


Answer the following:
What are the disclosures requirements for operating leases by the lessee asperAS-19?

Practical Questions
Question 1 (Nov - 2013) (4 Marks)
Answer the following:
Classify the following into either operating or finance lease:
[1] Lessee has option to purchase the asset at lower than fair value, at the end of lease term;
[2] Economic life of the asset is 7 years; lease term is 6 years/ but asset is not acquired at the
end of the lease term;
[3] Economic life of the asset is 6 years, lease term is 2 years, but the asset is of special nature
and has been procured only for use of the lessee;
[4] Present value (P V) of Minimum lease payment (MLP) = "X". Fair value of the asset is "Y".

Question 2 (May - 2014) (5 Marks)


Answer the following:
What do you understand by the term "Interest rate implicit on lease"?
Calculate the interest rate implicit on lease from the following details:
Annual Lease Rent : Rs.80,000 at the end of each year
Lease Period : 5 Years
Guaranteed Residual Value : Rs.40,000
Unguaranteed Residual Value : Rs.24,000
Fair Value at the inception of the lease : Rs.3,20,000
Discounted rates for the first 5 years are as below:
At 10% 0.909, 0.826, 0.751, 0.683, 0.621,
At 14% 0.877, 0.769, 0.675, 0.592, 0.519,

AS 19 - Leases Admin
By CA Sanket Shah 6
Question 3 (Nov - 2014) (Similar to TYK 13) (5 Marks)
Answer the following:
A machine having expected useful life of 6 years, is leased for 4 years, Both the cost and the
fair value of the machinery are Rs.7,00,000. The amount will be paid in 4 equal instalments
and at the termination of lease, lessor will get back the machinery. The unguaranteed residual
value at the end of the 4th year is Rs.70,000. The IRR of the investment is 10%. The present
value of annuity factor of Rs.1 due at the end of 4th year at 10% IRR is 3.169. The present value
of Rs.1 due at the end of 4th year at 10% rate 0f interest is 0.683.
State with reasons whether the lease constitutes finance lease and also compute the unearned
finance income.

Question 4 (Nov - 2015) (Similar to TYK 13) (5 Marks)


Answer the following:
Aksat International Limited has given a machinery on lease for 36 months and its useful life is
60 months. Cost and fair market value of the machinery is Rs.5,00,000. The amount will be
paid in 3 equal annual instalments and the lessee will return the machinery to lessor at
termination of lease. The unguaranteed residual value at the end of 3 years is Rs.50 000. IRR of
investment is 10% and present value of annuity factor of Rs.1 due at the end of 3 years at 10%
IRR is 2.4868 and present value of Rs.1 due at the end of 3rd year at 10% IRR is 0.7513.
You are required to comment with reason whether the lease constitute finance lease or
operating lease. If it is finance lease, calculate unearned finance income.

Question 5 (May - 2018) (Similar to Illu 3, TYK 14) (5 Marks)


A Ltd. sold JCB having WDV of Rs.20 lakhs to B Ltd. for Rs.24 lakhs and the same JCB was leased
back by B Ltd. to A Ltd. The lease is operating lease. In context of Accounting Standard 19
"Leases" explain the accounting treatment of profit or loss in the books of A Ltd. if
1. Sale price of Rs.24 lakhs is equal to fair value.
2. Fair value is Rs.20 lakhs and sale price is Rs.24 lakhs
3. Fair value is Rs.22 lakhs and sale price is Rs.25 lakhs.
4. Fair value is Rs.25 lakhs and sale price is Rs.18 lakhs
5. Fair value is Rs.18 lakhs and sale price is Rs.19 lakhs.

AS 19 - Leases Admin
By CA Sanket Shah 7
Question 6 (May - 2019) (5 Marks)
Jaya Ltd. took a machine on lease from Deluxe Ltd., the fair value being Rs.11,50,000. Economic
life of the machine as well as lease term is 4 years. At the end of each year, lessee pays
Rs.3,50,000 to lessor. Jaya Ltd. has guaranteed a residual value of Rs.70,000 on expiry of the
lease to Deluxe Ltd., however Deluxe Ltd. estimates that residual value will be only Rs.25,000.
The implicit rate of return is 10% p.a. and present value factors at 10% are: 0.909, 0.826, 0.751
and 0.683 at the end of 1st, 2nd, 3rd and 4th year respectively.
Calculate the value of machinery to be considered by Jaya Ltd. and the value of the lease liability
as per AS-19.

Question 7 (Nov - 2019) (5 Marks)


Answer the following:
X Ltd is a group engaged in manufacture and sale of industrial and FMCG products. One of
their division also deals in Leasing of properties - Mobile Towers. The accountant showed the
rent arising from the leasing of such properties as other income in the Statement of Profit and
Loss.
Comment whether the classification of the rent income made by the accountant is correct or
not in the light of Schedule III to the Companies Act, 2013.

Question 8 (Nov - 2019) (5 Marks)


Answer the following:
Classify the following into either operating lease or finance lease with reason:
[1] Economic life of asset is 10 years, lease term is 9 years, but asset is not acquired at the end
of lease term.
[2] Lessee has option to purchase the asset at lower than fair value at the end of lease term.
[3] Lease payments should be recognized as an expense in the statement of Profit and Loss of a
lessee.
[4] Present Value (PV) of Minimum Lease Payment (MLP) = "X". Fair value of the asset is "Y".
And X = Y
[5] Economic life of the asset is 5 years, lease term is 2 years, but the asset is of special nature
and has been procured only for use of the lessee.

AS 19 - Leases Admin
By CA Sanket Shah 8
Question 9 (Jan - 2021) (Same as TYK 14) (5 Marks)
Answer the following:
X Ltd. sold machinery having WDV of Rs.300 lakhs to Y Ltd. for Rs.400 lakhs and the same
machinery was leased back by Y Ltd. to X Ltd. The lease back arrangement is operating lease.
Give your comments in the following situations:
1. Sale price of Rs.400 lakhs is equal to fair value.
2. Fair value is Rs.450 lakhs.
3. Fair value is Rs.350 lakhs and the sale price is Rs.250 lakhs.
4. Fair value is Rs.300 lakhs and sale price is Rs.400 lakhs.
5. Fair value is Rs.250 lakhs and sale price is Rs.290 lakhs.

Question 10 (Dec - 2021) (5 Marks)


Answer the following:
A machine was given on 3 years’ operating lease by a dealer of the machine for equal annual
lease rentals to yield 30% profit margin on cost of Rs.2,25,000 Economic life of the machine is
5 years and output from the machine is estimated as 60,000 units, 75,000 units, 90,000 units,
1,20,000 units and 1,05,000 units consecutively for 5 years. Straight line depreciation in
proportion of output is considered appropriate. You are required to compute the following as
per AS-19.
[1] Annual Lease Rent
[2] Lease Rent income to be recognised in each operating year and
[3] Depreciation for 3 years of lease.

AS 19 - Leases Admin
By CA Sanket Shah 9

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