Frequently Asked Questions on IFRS

Chapter 4

Answers

1. True. IAS 17 Leases deals with accounting for lease transactions.

2. False. Transactions, including lease transactions, are accounted for by looking at their substance (i.e. their commercial reality) as opposed to their legal form.

3. True. If risks and rewards of ownership have passed to the lessee, the lease is a finance lease. If risks and rewards remain with the lessor, the lease is an operating lease.

4. False. Finance leases are capitalized on the statement of financial position with a corresponding lease creditor. The payments are then split between those of capital (which are debited to the lease obligations liability) and interest is debited to finance costs in profit or loss.

5. False. Off balance sheet financing is not permissible under any Generally Accepted Accounting Practice.

6. False. Assets of such a specialized nature that only the lessee can use without major modification are indicators of a finance lease.

7. True. Gains or losses resulting from the fluctuation in the fair value of the leased asset are indicators that the lease is a finance lease.

8. True. If the minimum leased payments amount to substantially all of the fair value of the leased asset, the lease is a finance lease.

9. False. There is no benchmark quantitative figure in IAS 17 that determines lease classification. Only the terminology ‘substantially all’ is used.

10. False. Contingent rents and executory costs are always excluded.

11. True. The incremental borrowing rate ...