GROUP OF 5

1. Entity A (customer) enters into a contract with Entity B (supplier) for the use of a data processing
equipment. According to the contract, Entity A shall operate the equipment only in accordance
with the standard operating procedures stated in the accompanying user’s manual. In assessing
the existence of a lease, does Entity A have the right to direct the use of the asset?
a. No, because the asset’s use is restricted.
b. Yes, because Entity A has the right to direct how and for what purpose the asset is used.
c. Yes, because the asset’s use is predetermined and Entity B is precluded from changing that
predetermined use.
d. Maybe yes, maybe no, but exactly I don’t know.

2. Which of the following is not one of the criteria when determining whether a contract is or contains
a lease?
a. Identified asset
b. Identified liability
c. Right to obtain substantially all of the economic benefits from use of an identified asset
throughout the period of use
d. Right to direct the use of the identified asset throughout the period of use

3. Which of the following statements is correct regarding the accounting for leases?
a. The lessor depreciates the leased asset under a finance lease.
b. The lessee depreciates the leased asset under a “short-term” or a “low-valued asset” lease.
c. When discounting lease payments the lessor and the lessee use the interest rate implicit in the
lease.
d. An entity can never be both a lessor and a lessee of a same leased asset.

4. According to PFRS 16, lease liabilities are presented in the lessee’s statement of financial position
a. separately from the other liabilities of the lessee.
b. together with other liabilities, with disclosure of the line items that include the lease liabilities.
c. a or b
d. not presented in the lessee’s financial statements but only in the lessor’s financial statements

5. According to PFRS 16, right-of-use assets are presented in the lessee’s statement of financial
position
a. separately from the other assets of the lessee.
b. together with other assets as if they were owned, with disclosure of the line items that include
the right-of-use assets.
c. a or b
d. not presented in the lessee’s financial statements but only in the lessor’s financial statements

1. Lessor Co. entered into two contract leases. Lease #1 transfers substantially all the risks and
rewards incidental to ownership of the leased asset. Lease #2 does not transfer substantially all the
risks and rewards incidental to ownership of the leased asset. How should Lessor Co. classify the
leases? (Lease #1); (Lease #2)
a. Finance, Operating c. Finance, Finance
b. Operating, Finance d. Operating, Operating
2. A lessor’s gross investment in a finance lease is computed as
a. lease payments plus unguaranteed residual value
b. present value of (a)
c. difference between (a) and (b)
d. sum of (a) and (b)

3. A lessor’s unearned interest income in a finance lease is computed as

a. lease payments plus unguaranteed residual value
b. present value of (a)
c. difference between (a) and (b)
d. sum of (a) and (b)

4. Which of the following does not correctly relate to the accounting for leases?
a. The underlying asset in a lease contract is recognized by the lessee in its financial statements.
b. The lessor recognizes a finance lease receivable equal to the net investment in a finance lease.
c. A manufacturer or dealer lessor recognizes gross profit or loss on commencement of a finance
lease in accordance with its policy for outright sales.
d. The lessor recognizes lease payments receivable from an operating lease as income in the
period earned.
e. The lessor continues to recognize an asset subject to a finance lease in its financial statements.

5. Regarding the accounting for the residual value of a leased asset, which of the following
statements is incorrect?
a. A lessee accounts for a residual value only if it is guaranteed.
b. A lessor accounts for a residual value only if it is guaranteed.
c. A lessor accounts for a residual value whether guaranteed or not.
d. Both lessee and lessor will account for a residual value only if the leased asset reverts back to
the lessor.

6. Under operating leases, lessors

a. recognize rent income using a straight line basis, unless another method is more appropriate.
b. recognize interest income using the effective interest method.
c. recognize different amounts of rent income each year depending on the contractual payments
d. any of these

7. Security deposits that are refundable

a. are treated as unearned income by lessors under an operating lease.
b. are not discounted because they are normally of a short-term nature
c. are treated as receivable by lessees and as payable by lessors.
d. are discounted only by lessees but not by lessors

8. If the lessor recognizes rent income (lease income), then the lease must have been classified as
a. finance lease c. a or b
b. operating lease d. none of these

9. Which of the following statements is false regarding the accounting for leases?
 a. The lessor may not use the straight line basis for recognizing lease income under an operating
lease if another systematic basis is more representative of the pattern in which benefit from
the use of the underlying asset is diminished.
b. The amount of lease income recognized each year under an operating lease is typically
constant even though the contractual payments increase every year by a certain amount
specified in the contract.
c. It is possible that the lessor does not depreciate the leased asset even if the lease is classified
as an operating lease.
d. Under an operating lease, the lessor capitalizes initial direct costs. These costs will increase the
lease income each year.

10. Which of the following is correct regarding the accounting for operating leases?
a. A lessor under an operating lease may classify the lease as either direct operating lease or sales
type operating lease.
b. A lessor includes a rent collected in advance as part of the cost of the leased asset.
c. A lessor includes initial direct costs incurred on the operating lease as part of the cost of the
leased asset to be recognized in profit or loss on the same basis as rent income is recognized.
d. A lessor includes initial direct costs incurred on the operating lease as part of the cost of the
leased asset to be recognized in profit or loss on the same basis as depreciation expense is
recognized.