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Questions and Answers
What is the main objective of IFRS 16?
What is the main objective of IFRS 16?
- To establish principles for reporting financial information about leases (correct)
- To provide a framework for accounting for income taxes
- To provide guidance on revenue recognition
- To regulate financial institutions' reporting on credit losses
What is the scope of IFRS 16?
What is the scope of IFRS 16?
- It applies only to finance leases
- It applies to all contracts, including service contracts
- It applies to all leases, except for those involving low-value assets (correct)
- It applies to leases and service contracts involving significant finance components
What is the primary focus of the recognition section in IFRS 16?
What is the primary focus of the recognition section in IFRS 16?
- Measuring the lease liability and right-of-use asset (correct)
- Determining the lease term
- Classifying leases as finance or operating leases
- Assessing the transfer of risks and rewards
What is the main topic of the 'lessor' section in IFRS 16?
What is the main topic of the 'lessor' section in IFRS 16?
What is the purpose of the 'temporal exception' in IFRS 16?
What is the purpose of the 'temporal exception' in IFRS 16?
Where can the basis for conclusions on IFRS 16 be found?
Where can the basis for conclusions on IFRS 16 be found?
What is the primary basis for a lessor to classify a lease?
What is the primary basis for a lessor to classify a lease?
What is a characteristic of a finance lease?
What is a characteristic of a finance lease?
Which of the following is an example of a situation that would normally lead to a lease being classified as a finance lease?
Which of the following is an example of a situation that would normally lead to a lease being classified as a finance lease?
What is a characteristic of an operating lease?
What is a characteristic of an operating lease?
Which of the following would normally lead to a lease being classified as a finance lease?
Which of the following would normally lead to a lease being classified as a finance lease?
What is required for a lease to be classified as a finance lease?
What is required for a lease to be classified as a finance lease?
When applying this Standard, what can an entity do as a practical expedient?
When applying this Standard, what can an entity do as a practical expedient?
What should an entity use when accounting for a portfolio of leases?
What should an entity use when accounting for a portfolio of leases?
When should an entity combine two or more contracts into a single contract?
When should an entity combine two or more contracts into a single contract?
What is one criterion for combining contracts into a single contract?
What is one criterion for combining contracts into a single contract?
What is another criterion for combining contracts into a single contract?
What is another criterion for combining contracts into a single contract?
What is the third criterion for combining contracts into a single contract?
What is the third criterion for combining contracts into a single contract?
When classifying a lease that includes both land and buildings elements, what should a lessor do?
When classifying a lease that includes both land and buildings elements, what should a lessor do?
Why is it important to consider the economic life of land when classifying a lease?
Why is it important to consider the economic life of land when classifying a lease?
How should a lessor allocate lease payments between the land and buildings elements?
How should a lessor allocate lease payments between the land and buildings elements?
What happens if the lease payments cannot be allocated reliably between the land and buildings elements?
What happens if the lease payments cannot be allocated reliably between the land and buildings elements?
Under what condition can a lessor treat the land and buildings as a single unit for the purpose of lease classification?
Under what condition can a lessor treat the land and buildings as a single unit for the purpose of lease classification?
What is the implication of classifying a lease as a finance lease?
What is the implication of classifying a lease as a finance lease?
What is required for a customer to control the use of an identified asset?
What is required for a customer to control the use of an identified asset?
How can a customer obtain economic benefits from the use of an asset?
How can a customer obtain economic benefits from the use of an asset?
What are included in the economic benefits from use of an asset?
What are included in the economic benefits from use of an asset?
When assessing the right to obtain substantially all of the economic benefits from use of an asset, what should an entity consider?
When assessing the right to obtain substantially all of the economic benefits from use of an asset, what should an entity consider?
What is an example of limiting the use of a motor vehicle during the period of use?
What is an example of limiting the use of a motor vehicle during the period of use?
When should an entity consider the economic benefits from use of a motor vehicle in a particular territory?
When should an entity consider the economic benefits from use of a motor vehicle in a particular territory?
Flashcards
IFRS 16
IFRS 16
IFRS 16 sets out the principles for recognition, measurement, presentation, and disclosure of leases.
Finance Lease
Finance Lease
A lease that transfers substantially all the risks and rewards of ownership.
Operating Lease
Operating Lease
A lease that does not transfer substantially all the risks and rewards of ownership.
Finance Lease Indicator
Finance Lease Indicator
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Bargain Purchase Option
Bargain Purchase Option
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Major Part of Economic Life
Major Part of Economic Life
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PV of Lease Payments
PV of Lease Payments
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Specialized Asset
Specialized Asset
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Land and Building Leases
Land and Building Leases
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Lease Payment Allocation
Lease Payment Allocation
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Unreliable Allocation
Unreliable Allocation
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Control of Asset Use
Control of Asset Use
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Economic Benefits of Asset
Economic Benefits of Asset
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Scope of Economic Benefits
Scope of Economic Benefits
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Study Notes
IFRS 16: Leases
- IFRS 16 is an International Financial Reporting Standard that sets out the principles for the recognition, measurement, presentation, and disclosure of leases.
Classification of Leases
- A lessor shall classify each of its leases as either an operating lease or a finance lease.
- A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset.
- A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.
Finance Lease
- Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease:
- The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
- The lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable.
- The lease term is for the major part of the economic life of the underlying asset even if title is not transferred.
- At the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset.
- The underlying asset is of such a specialized nature that only the lessee can use it without major modifications.
Lessor: Lease Classification
- When a lease includes both land and buildings elements, a lessor shall assess the classification of each element as a finance lease or an operating lease separately.
- The allocation of lease payments between the land and buildings elements is in proportion to the relative fair values of the leasehold interests in the land element and buildings element of the lease at the inception date.
- If the lease payments cannot be allocated reliably between these two elements, the entire lease is classified as a finance lease, unless it is clear that both elements are operating leases, in which case the entire lease is classified as an operating lease.
Identifying a Lease
- To control the use of an identified asset, a customer is required to have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use.
- The economic benefits from use of an asset include its primary output and by-products, and other economic benefits from using the asset that could be realized from a commercial transaction with a third party.
- When assessing the right to obtain substantially all of the economic benefits from use of an asset, an entity shall consider the economic benefits that result from use of the asset within the defined scope of a customer’s right to use the asset.
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