Certificate in International Financial Reporting Leases, Provisions, and Employee Benefits 1 — Questions and Answers
Question 1: Under IFRS 16, how does a lessee recognise most leases on its balance sheet at commencement?
- As a right-of-use asset and a corresponding lease liability (Correct answer)
- As an operating expense over the lease term
- As a finance lease asset only
- No recognition; disclosed in notes only
Correct answer: As a right-of-use asset and a corresponding lease liability
IFRS 16 requires lessees to recognise a right-of-use asset and lease liability for virtually all leases.
Question 2: Which of the following is an exemption under IFRS 16 that allows a lessee to expense lease payments straight-line?
- Short-term leases (12 months or less) and low-value asset leases (Correct answer)
- All operating leases
- Leases with purchase options
- Leases with variable payments only
Correct answer: Short-term leases (12 months or less) and low-value asset leases
IFRS 16 permits the short-term and low-value exemptions which allow straight-line lease expense treatment.
Question 3: Under IAS 37, a provision should be recognised when:
- There is a present obligation, it is probable an outflow will be required, and the amount can be reliably estimated (Correct answer)
- An obligation exists regardless of probability
- A constructive obligation exists with any probability of outflow
- Legal proceedings have commenced
Correct answer: There is a present obligation, it is probable an outflow will be required, and the amount can be reliably estimated
All three criteria—present obligation, probable outflow, and reliable estimate—must be met for a provision.
Question 4: Under IAS 37, a contingent liability is:
- Disclosed in the notes but not recognised in the financial statements (Correct answer)
- Recognised as a provision
- Recognised as a liability at fair value
- Ignored unless the outflow is certain
Correct answer: Disclosed in the notes but not recognised in the financial statements
A contingent liability is disclosed rather than recognised because the outflow is possible but not probable.
Question 5: Under IAS 19, a defined benefit obligation is measured using:
- The projected unit credit method (Correct answer)
- The accumulated benefit method
- The current unit credit method
- The corridor approach
Correct answer: The projected unit credit method
IAS 19 requires the projected unit credit actuarial method to measure defined benefit obligations.
Question 6: Under IAS 19, actuarial gains and losses on defined benefit plans are recognised in:
- Other comprehensive income (OCI) (Correct answer)
- Profit or loss immediately
- Deferred as a separate balance sheet item
- Amortised through profit or loss using corridor approach
Correct answer: Other comprehensive income (OCI)
IAS 19 requires immediate recognition of actuarial gains and losses in OCI with no recycling to profit or loss.
Certificate in International Financial Reporting Leases, Provisions, and Employee Benefits 1
Under IFRS 16, how does a lessee recognise most leases on its balance sheet at commencement?