IFRS for SMEs Leases and Service Concessions Flashcards

Under IFRS for SMEs, the minimum lease payments for a lessee include:

Answer: Payments over the lease term and any guaranteed residual value

Minimum lease payments comprise rentals over the lease term plus any residual value guaranteed by the lessee or a related party.

Under IFRS for SMEs, how are contingent rents in an operating lease recognized by the lessee?

Answer: As an expense in the period in which they are incurred

Contingent rents (those that depend on a factor other than the passage of time) are recognized as expenses in the period they are incurred.

Under IFRS for SMEs, a sale and leaseback transaction that results in a finance lease is accounted for by the seller-lessee by:

Answer: Deferring any profit on sale and amortizing it over the lease term

For a sale and leaseback resulting in a finance lease, any apparent profit on the sale is deferred and amortized over the lease term because the asset is effectively retained.

Under IFRS for SMEs, a sale and leaseback that results in an operating lease at fair value is accounted for by:

Answer: Recognizing any gain or loss on sale immediately

If a sale and leaseback at fair value results in an operating lease, the transaction is a genuine sale and the gain or loss is recognized immediately.

Under IFRS for SMEs, incentives received from a lessor to enter an operating lease (e.g., rent-free periods) should be:

Answer: Recognized as a reduction of lease expense over the lease term on a straight-line basis

Lease incentives reduce the total lease expense and are spread over the lease term on a straight-line basis along with the lease payments.

Under IFRS for SMEs, which interest rate is used to calculate the present value of minimum lease payments when the rate implicit in the lease is not determinable?

Answer: The lessee's incremental borrowing rate

If the interest rate implicit in the lease cannot be determined, the lessee uses its incremental borrowing rate—the rate it would pay to borrow the funds needed to buy the asset.