Question

The appropriate initial asset value reported in the balance sheet by the lessee for a long-term operating lease is:

a. Present value of the minimum lease payments.

b. Sum of the minimum lease payments.

c. Fair value of the asset at the inception of the lease.

d. Zero, unless a prepayment or accrual is involved.

The appropriate initial asset value reported in the balance sheet by the lessee for a long-term finance lease is:

a. Present value of the minimum lease payments.

b. Sum of the minimum lease payments.

c. Fair value of the asset at the inception of the lease.

d. Zero, unless a prepayment or accrual is involved.

The appropriate initial asset value reported in the balance sheet by the lessee for a short-term lease is:

a. Present value of the minimum lease payments.

b. Sum of the minimum lease payments.

c. Fair value of the asset at the inception of the lease.

d. Zero, unless a prepayment or accrual is involved.

Answer 1

1)

IFRS 16 "Leases" has changed the accounting for operating leases. Now lessee needs to do capitalize the present value of all the lease payments at the initial date and correspondingly create a lease liability.

Going by the requirement of IFRS 16, So option (a) is the correct answer i.e.. Present value of the minimum lease payments.

2)

For a capital lease, lessee shall record the asset at fair value. Hence the correct option will be (c) i.e.. Fair value of the asset at the inception of the lease.

Journal entry will be as follows-:

Non-Current Asset A/c Dr.

To Lease liability A/c

3)

Lessee should not do accounting for short term leases or low value of asset. Short term leases are those lease which have the maturity of less 12 months. No entry for this transaction needs to be passed.

Hence the correct option will be (d) Zero, unless a prepayment or accrual is involved.