Question

Question One

Discuss the main improvements brought about by the introduction of IFRS 16, when it replaced IAS 37? (3 marks)

Question Two

ABC, a manufacturing company, needs to adopt the new standard IFRS 16 Leases in the reporting period ending 31 December 2019.

ABC entered into the leasing contract on 1 January 2019 for 5 years. The annual rental payments are $100, 000 in arrears (that is, 31 December each year). At the end of the lease term, the machine will be returned to the lessor. The economic life of the machine is 5 years. The lessor’s implicit interest rate, which is known to ABC, is 3%.

Instructions

(a)   What is the lease liability for ABC Company? (2 marks)

(b)   Record the lease on ABC Company’s books at the date of inception. (2 marks)

(c)   Prepare a lease amortization schedule. (4 marks)

(d)   Record the first year’s depreciation on ABC Company’s books (assume straight-line). (2 marks)

(e)   Record interest expense and lease liability for ABC Company for the year ending December 31, 2019. (3 marks)

(f)    Show the Statement of Comprehensive Income and Statement of Financial Position extracts for ABC Company for December 31, 2019. (4 marks)

Answer 1

(1) ANSWER IFRS 16 are effective from 1st Jan 2019 gt provides right of use of asset Here all leases whether Financing or operating are taken in balance sheet as right of use Asset (ROU) and leased callity. In the place of Rent expenses now Interest and de preiciation will be booked accept low valve item and leases below 12 month. (2) solution 4 2022 5-2023 100 to Prof lease payment year case payment discount facho PV 1 2079 100002 0.9H 97087 22000 100 000 0.943 94260 3 204 100000 0915 915ly 0 SSS 88849 100 000 0.863 86261 Total 500,ooo 457971 le), c, b ) Statement of lease l'ablity & Interest year lease liablity Lease Interest Decrease - Lease BIF payment 1 B = 4X37 ) (A) in LL Call 100 000 13739 86261 37170 2 2020 371710 100 000 IISI 88849 28286) 282861 8486 91514 191347 u 2022 191347 MUD00D 5740 94260 97087 < 2023 97087 2913 97087 SDO,000 42029 Total 45797 2019 457971 3.2024 100 000 10000 (a) Ans 4.5797 (bad) first year deph exp = 45794/5 =91594 (SLM) (f) statement of comprehensive Income operating Deph of I neast 31.3.2017 lcase expenses ROU Asset 91594 (lease lastity) 13 739