Lease IFRS 16-Qns

School: Institute of Finance Management, Dar Es Salaam - Course: ACCOUNTING 08503 - Subject: Accounting

IFRS 16-LEASES Question 1 (Financial lease in the books lessee) On 1st January 2019, Diamond entered into two year lease for machinery The contract contain option to extend the lease term for a further year. Diamond believes that it is reasonably certain to exercise this option . Machineries have a useful life of ten years. Lease payment are TZS 100,000,000 per annum for the initial term and TZS 150,000,000 per annum for the option period. All payment are due at the end of the year . To obtain the lease Diamond incurs initial direct cost of TZS 30,000,000. Lessor agreed to reimburse its 10,000,000 Soph. The interest rate within the lease is not ready determinable. Diamond's incremental rate of borrowing is 5%. Required a)Calculate the initial carrying amount of the lease liability and the right to use asset and provide the double entries needed to record these amounts in Diamond's financial records. b)Prepare extract from the statement of profit or loss and other comprehensive income for the year ended 31 December 2019, 31 December 2020 and 31 December 2012 for the lessee and the statement of financial position. Question2 (Financial lease in the books of lessee) Sibajene Plc entered into a five year lease of factory plant commencing on 1.1.2018. The plant had a useful economic life of 15 year a fair value of TZS 30 million that date . Sibajene spent TZS 2,000,0000 to transport the plant form the lesser premises into its factory. The cost of installing the plant in sibajener's factory amounted to TZS 1,000,000 Legal cost relating to the lease contract intruded by Sibajene's were TZS 500,000. The lease required Sibajene to initially pay arental ( due 31 December each year ) of TZS 5,000,000 p.a for the first three year of the lease term and TZS 3,000,000 thereafter Sibajene was required to guarantee the residual value of the plant at end of the lease term at a fair value of TZS 12 million . Sibajen's is required to dismantle and transport the plant back to the lessor's premises at end of the leas tram. The cost of this has been estimated at TZS 2,500,000. The company incremental borrowing rate at 1 January 2018 was 15%. all amount requiring discountingmust be discounted at 15%. Required: show with appropriate calculation , The accounting entrants required to record each transaction above for the year ended 31 December 2018. present the relevant extract from the statement of profit or loss for the year ended 31 December 2018 and the statement of financial position as at that date. Question 3 (Finance lease in the books of lessee) P Limited entered into a four year lease on 1 January 2019 fro a machine. Rentals are TZS 20,000,000 p.a payable in advance P . Limited incurs initial direct cost of TZS 5,000,000. The rate of interest implicit in the lease is the lease is 10% Machine has a useful life five years. Required; Prepare extracts from financial statement for the year ended 31 December 2019-

Question4 (Low value assets) On 1stApril 2018 .Tenge acquires telephones for its sale forces under a two year leas agreement. The term of the lease require an initial payment of TZS 2,000,000 . Followed by two payment of TZS 8,000,000 each on 31st march 2020. Required: Show the impact of this leas arrangement on the financial statement of Tenge for the year ended 31st December 2018. Question 5 (Low value asset) On 1stJanuary 2018 an entity leases officer equipment for5 year . The total value of the equipment when new is TZS 11,500,000, determined by the entity to be low value asset lease payments are payable as follows. Year 1-TZS nil (rent free period) Year 2 and 3-TZS4,025, 000 per year Year4 and 5-TZS 3,450,000 per year In addition the lessor provided a lease incentive with the value of TZS 1,150,000 Required: Show the impact of this lease arrangement in the financial statement of an entity for the year ended 31stDecember 2018.