IFRS for SMEs) IFRS for SMEs Leases and Service Concessions 1 — Questions and Answers
Question 1: Under IFRS for SMEs, a finance lease is one that:
- Transfers substantially all the risks and rewards incidental to ownership of the leased asset to the lessee (Correct answer)
- Has a lease term of more than one year
- Has a lease term equal to or greater than 75% of the asset's useful life
- Includes a purchase option at fair value
Correct answer: Transfers substantially all the risks and rewards incidental to ownership of the leased asset to the lessee
IFRS for SMEs defines a finance lease as a lease that transfers substantially all risks and rewards of ownership to the lessee, regardless of legal title.
Question 2: Under IFRS for SMEs, at the commencement of a finance lease, the lessee recognizes:
- An asset and a liability at the lower of the fair value of the leased asset and the present value of minimum lease payments (Correct answer)
- Only lease expense over the lease term
- A right-of-use asset at the present value of all lease payments
- Only a contingent liability for future rentals
Correct answer: An asset and a liability at the lower of the fair value of the leased asset and the present value of minimum lease payments
At commencement, the lessee recognizes an asset and a corresponding lease liability at the lower of the fair value of the leased asset and the present value of minimum lease payments.
Question 3: Under IFRS for SMEs, how does a lessee account for an operating lease?
- Lease payments are recognized as an expense on a straight-line basis over the lease term (Correct answer)
- An asset and liability are recognized at inception
- Only a disclosure note is required
- Lease payments are capitalized and depreciated
Correct answer: Lease payments are recognized as an expense on a straight-line basis over the lease term
Under IFRS for SMEs, operating lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term.
Question 4: Which of the following is an indicator of a finance lease under IFRS for SMEs?
- The lease term is for the major part of the economic life of the asset (Correct answer)
- The lessor retains all risks of ownership
- Lease payments increase annually with inflation only
- The asset is returned in the same condition as provided
Correct answer: The lease term is for the major part of the economic life of the asset
A lease term covering the major part of an asset's economic life is one of the indicators that a lease is a finance lease under IFRS for SMEs.
Question 5: Under IFRS for SMEs, how does a lessor classify leases?
- As either finance leases or operating leases based on whether substantially all risks and rewards are transferred (Correct answer)
- All leases are operating leases for the lessor
- Based on the lessor's business model
- As direct financing or sales-type leases
Correct answer: As either finance leases or operating leases based on whether substantially all risks and rewards are transferred
Under IFRS for SMEs, a lessor classifies each lease as either a finance lease or an operating lease based on the same risks-and-rewards principle as for lessees.
Question 6: Under IFRS for SMEs, a lessor with a finance lease recognizes the lease as:
- A receivable at an amount equal to the net investment in the lease (Correct answer)
- An asset on the balance sheet at cost
- An off-balance-sheet arrangement
- Revenue immediately at the commencement date
Correct answer: A receivable at an amount equal to the net investment in the lease
A finance lessor derecognizes the leased asset and recognizes a receivable equal to the net investment in the lease (present value of minimum lease payments plus unguaranteed residual value).
IFRS for SMEs) IFRS for SMEs Leases and Service Concessions 1
Under IFRS for SMEs, a finance lease is one that: