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IFRS 16

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12 views

IFRS 16

Test your standard

Uploaded by

mehmoodshahkhan123
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Certificate in Accounting and Finance Stage Examination

Date: 20 May 2024 Additional reading time – 10 Minutes


Test 1 Marks: 35 marks
Topic: Leases Time: 1 Hour & 10 minutes

Financial Accounting & Reporting II


Instructions to examinees:
Answer all questions.
Answer in black pen only.
Start new question on new page
Write page number on top of your answer scripts.

Question # 1
Multiple Choice Questions. (05)

(i) Meta AI Limited entered into a five-year lease agreement on 1 November 2012, paying Rs. 109,750
per annum, commencing on 31 October 2013. The present value of the lease payments was Rs. 450,000
and the interest rate implicit in the lease was 7%.
What is the amount to be shown within non-current liabilities at 31 October 2013?
(a) Rs. 262,072
(b) Rs. 288,023
(c) Rs. 371,750
(d) Rs. 364,070

(ii) IFRS 16 Leases permits certain assets to be exempt from the recognition treatment for right of use
assets. Which of the following assets leased to an entity would be permitted to be exempt?
(a) A used Supra with an original cost of Rs. 1,500,000 and a current fair value of Rs. 70,000, leased
for 24 months
(b) A new Supra with a cost of Rs. 1,500,000, leased for 24 months
(c) A new Supra with a cost of Rs. 1,500,000, leased for 24 months, to be rented to customer on a
daily rental basis
(d) A new Supra with a cost of Rs. 1,500,000, leased for 12 months

(iii) On 1 April 2017 Panther Limited (PL) entered into a five-year lease agreement for a machine with an
estimated life of 7 years. Which of the following conditions would require the machine to be
depreciated over 7 years?
(a) PL has the option to extend the lease for two years at a market-rate rental
(b) PL has the option to purchase the asset at market value at the end of the lease
(c) PL’s policy for purchased assets is to depreciate over 7 years
(d) Ownership of asset passes to PL at the end of the lease period
(iv) Which of the following would not be included within the initial cost of a right of use asset?
(a) Installation cost of the asset
(b) Estimated cost of dismantling the asset at the end of the lease period
(c) Payments made to the lessor before commencement of the lease
(d) Total lease rentals payable under the lease agreement

(v) Which TWO of the following are disclosure requirements relating to a lessor?
(a) Selling profit or loss
(b) Income from subleasing right of use asset
(c) A reconciliation of undiscounted lease payments to the net investment in the lease
(d) The charge related to short term leases

Question # 2
Revo Limited (RL) is a manufacturer of heavy vehicles. Revo Limited sells the vehicles on cash as well Finance
lease agreement.
Gillete Limited (GL) purchased a vehicle from RL and opt for their finance lease agreement. The detail of the
lease is as follow:
i) The lease period is 5 years (signed on 1 January 2020).
ii) Lease installments of Rs. 2.138 million are payable annually in arrears on 31 December.
iii) A fair market interest rate for the type of lease is 16%.
iv) The cost to Revo Limited to manufacture this vehicle was Rs. 5 million.
v) Revo Limited implements a markup of cost plus 40% on their cash sales.

Required:
(a) Prepare journal entries for each of the year ended December 31, 2020 and 2021 in Revo Limited Books.
(b) Prepare notes to the financial statements in the books of Revo Limited for the year ended December 31,
2021 (including Comparatives).
(15)

Question # 3
Kainat limited (KL) is engaged in manufacturing of vegetable oil. On 1 July 2018, it obtained a plant on lease
from a bank. Detail of the lease agreement are as follow:
i) Cost of plant is Rs. 1,600,000.
ii) Installments of Rs. 480,000 are to be paid annually in advance.
iii) The lease term and useful life is 4 years and 5 years respectively.
iv) The interest rate implicit in the lease is 13.701%.

Required:
(a) Prepare journal entries to record the above transactions in the books of KL.
(b) Prepare a note to the financial statements related to disclosure of lease for the year ended 30 June 2019 in
the books of KL in accordance with the requirements of IFRS.
(15)

(THE END)

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