Box AF 2340, Adenta Accra
info@passquo.com

No products in the cart.

No products in the cart.

Register

IFRS 16 Leases
Home Level 2 2.1 Financial Reporting Archive by Category "IFRS 16 Leases"

Category: IFRS 16 Leases

2.1 Financial ReportingIFRS 16 LeasesLevel 2

May 2021 Q2 d.

Odwira Ltd operates in the mining industry with a financial year end 31 December, 2020. On 1 January, 2020, Odwira Ltd began to lease a group of machines that were used in the production process. The lease was for five years, and the total annual rental (payable in arrears) was GH¢8 million. The lessor paid GH¢30 million for the machines on 31 December 2019. The lessor has advised Odwira Ltd that the interest rate implicit in the lease can be taken as 10%. The estimated useful economic life of the machines were five years.

Required:
In accordance with IFRS 16: Leases, show the accounting treatment of the above transaction.  (4 marks)

View Solution

The lessee is required under IFRS 16 to recognise a right-of-use asset and a corresponding liability. Accordingly, GH¢30.320 million is to be included both as asset and lease liability on initial recognition. The lease liability is treated as shown below:

The statement of profit or loss in the first year will include a finance cost of GH¢3.032million with a depreciation charge of GH¢6.064 million.

The statement of financial position will include closing lease liability in the current year, GH¢25.352 million, of which GH¢19.887 million is a non-current liability and GH¢5.465 million is a current liability. The right of use asset of GH¢30.320 million will be depreciated over five years (GH¢30.320 ÷ 5 years) = GH¢6.064 million. Therefore, the asset will be recognised in the statement of financial position at GH¢24.256 million (.i.e. GH¢30.320 – 6.064) million.

Alternatively, the current lease liability GH¢5.465 million (GH¢8 million-GH¢2.535) million) and the non-current lease obligation is GH¢19. 887 million (GH¢25.352 million- GH¢19.887 million).
Workings:
Lease liability = 3.971 x GH¢8 million) = 30.320 million

View More
2.1 Financial ReportingIFRS 16 LeasesLevel 2

Nov 2019 Q2 c.

On 1 August 2018, Asawase Ltd entered into an agreement to acquire a motor vehicle. The terms of the agreement were that the vehicle would be leased for 5 years from the date of inception, subject to a deposit of GH¢19,972 and 5 annual payments of GH¢6,500 in advance, commencing on 1 August 2018. The fair value of the vehicle and the present value of the lease payments were GH¢48,000 at inception. The interest rate implicit in the lease is 8%.
Required:
In accordance with IFRS 16: Leases, show with appropriate calculations, the accounting entries required to record the transaction above in the financial statements for the year ended 31 July 2019.                                                                  (7 marks)

View Solution

 

View More
2.1 Financial ReportingIFRS 16 LeasesLevel 2

May 2019 Q2 e.

IFRS 16: Leases was issued in January 2016 and is effective for accounting periods beginning on or after 1 January 2019. However, early adoption is permitted, provided IFRS 15: Revenue from Contracts with Customers is implemented also. This standard applies to all leases, except those shorter than 12 months and small assets. It also brings additional disclosure requirements for both lessees and lessors. The IFRS brings significant changes to those leases formerly classified as operating leases under IAS 17: Leases, the previous standard.
Required:
Identify THREE (3) key principles behind the accounting treatment for leases as required by IFRS 16.                       (3 marks)

View Solution

  • The approach to leases adopted by IFRS 16 requires the commitment to make annual payments to be recognised as a liability, provided the resulting benefit is an asset under the control of the entity for the term of the lease.
  • The asset is recognised at present value of the minimum required lease payments, and is depreciated over the shorter of the lease term or the asset’s useful economic life (unless it is highly likely that the asset will transfer to the lessee at the end of the least term, in which case the asset’s useful economic life should be used).
  • The liability is initially measured at the present value of minimum required lease payments, and is subsequently measured at amortised cost, with finance costs taken to profit or loss as incurred, using the effective rate implicit in the lease, or the entity’s cost of capital if the implicit rate is not available.

View More