During the year ended 30 September 2014, an entity entered into two lease transactions.
On 1 October 2013, the entity made a payment of Rs. 900,000 is the first of five equal annual
payments under a lease for an item of plant. The lease has an implicit interest rate of 10% and the
present value of the total lease payments on 1 October 2013 was Rs. 3,400,000.
On 1 January 2014, the entity made a payment of Rs. 180,000 for a one-year lease of an item of
equipment.
What amount in total would be charged to the entity’s statement of profit or loss for the year ended 30
September 2014 in respect of the above transactions?

Zeta Limited entered into a five-year lease agreement on 1 November 2012, paying Rs. 109,750
per annum, commencing on 31 October 2013. The present value of the lease payments was Rs.
450,000 and the interest rate implicit in the lease was 7%.
What is the amount to be shown within non-current liabilities on 31 October 2013?

IFRS 16 Leases permits certain assets to be exempt from the recognition treatment for right-of-use
assets. Which of the following assets leased to an entity would be permitted to be exempt?

On 1 January 2013, Rita Limited acquires a new machine with an estimated useful life of 6 years
under the following agreement:
An initial payment of Rs. 1,376,000 will be payable immediately and 5 further annual payments of
Rs. 2,000,000 will be due, commencing 1 January 2013. The interest rate implicit in the lease is 8%.
The present value of the lease payments, excluding the initial payment, is Rs. 8,624,000
What will be recorded in financial statements on 31 December 2014 in respect of the lease liability?

On 1 April 2017 Pink Limited (PL) entered into a five-year lease agreement for a machine with an
estimated life of 7 years. Which of the following conditions would require the machine to be
depreciated over 7 years?

On 1 January 2014 Beta Limited (BL) entered into a lease agreement to lease an item of machinery
for 4 years with rentals of Rs. 210,000 payable annually in arrears. The asset has a useful life of 5
years and at the end of the lease term legal ownership will pass to BL. The present value of the
lease payments at the inception of the lease was Rs. 635,000 and the interest rate implicit in the
lease is 12.2%.
For the year ended 31 December, 2014 BL accounted for this lease by recording the payment of Rs.
210,000 as an operating expense. This treatment was discovered during 2015 after the financial
statements for 2014 had been finalized.
In the statement of changes in equity for the year ended 31 December 2015 what adjustment will
be necessary to retained earnings brought forward?

On 1 October 2013, Multan Limited acquired an item of the plant under a five-year lease agreement.
The agreement had an implicit interest rate of 10% and required annual rentals of Rs. 6 million to
be paid on 30 September each year for five years.
The present value of the annual rental payments was Rs. 23 million.

What would be the current liability for the leased plant in Multan Limited’s statement of financial
position as of 30 September 2014?

Which of the following would not be included within the initial cost of a right-of-use asset?

IFRS 16 Leases permits certain assets to be exempt from the recognition treatment for right-of-use
assets. Which of the following leases of assets leased to an entity would NOT be permitted to be
exempt?

Noor Limited leases a car for office use. The present value of lease payments is Rs. 2,735,500 and
the rate implicit in the lease is 10%. The terms of the lease require three annual installments of Rs.
1,000,000 each at the start of each year.
At the end of the first year of the lease what amount will be shown for the lease liability in the company’s
statement of financial position under the heading of non-current liabilities?

Which TWO of the following are disclosure requirements relating to a lessor?

Jalal Leasing Limited (JLL) gave a plant under finance lease on 1 January 2011 to a customer. The
lease term is 4 years. The fair value of the asset is Rs. 11,000 and JL incurred initial direct costs of
Rs. 420. The interest rate implicit in the lease is 15%. Rentals of Rs. 4,000 are receivable on 31
December (also financial year-end) each year.
What is the amount of net investment in lease to be presented under current assets as of 31 December
2012?

A company leases a computer server with the legal title of the asset passing after four years. The
the company usually depreciate computers over six years.
The company also leases a machine for fourteen years, but the legal title does not pass to the lessee
at the end of the agreement. The company usually depreciates machinery over twenty years.
Over what period of time should the computer and machine be depreciated?

Faheem Limited (FL) leased out its building on 1 January 2011 under an operating lease. The
carrying value of the building is Rs. 239,000 and its remaining useful life is 25 years with no residual
value.
FL also incurred Rs. 11,000 as initial direct costs. According to the agreement, Rs. 16,000 was paid by
the lessee as initial deposit and further rental of Rs. 10,000 per annum. shall be paid at the end of next
two years and then Rs. 32,000 per annum. shall be paid for the following two years.
The lease term is 4 years.
What amount of lease income should be recognized in profit or loss for the year ended 31 December
2011?

Galaxy Leasing Limited (GLL) has leased certain equipment to Dairy Products Limited on 1 July
2013. In this respect, the following information is available:
Rs. in million
Cost of equipment 28.69
Amount received on 1 July 2013 3.00
Four annual installments payable in arrears
(on 30 June, each year) 7.80
Guaranteed residual value on expiry of the lease 5.00

The useful life of the equipment is estimated at 5 years. The rate of interest implicit in the lease is 14%.
What amount will be presented in non-current assets for net investment in the lease as of 30 June
2014?

Alpha Limited leases an asset with an estimated useful life of 6 years for an initial period of 5 years,
and an optional secondary period of 2 years during which a nominal rental will be payable.
The present value of the initial period lease payments is Rs. 870,000.
What will be the carrying amount of the asset in Alpha Limited’s statement of financial position at
the end of the second year of the lease?

Kamil Limited (KL) is engaged in the manufacturing of plants. The following data relates to an asset
leased out by the company on January 01, 2011.
Cost Rs. 200,000
Sales price (quoted) Rs. 240,000
Installment at the end of each year Rs. 40,000
Lease term 7 years
Unguaranteed residual value Rs. 2,000
Initial direct costs Rs. 1,000
Rate of interest (quoted) 4%
(the low rate is quoted to attract customers)
The market rate of interest 7%
What is the amount of net investment in the lease as of January 01, 2011?

Kamil Limited (KL) is engaged in the manufacturing of plants. The following data relates to an asset
leased out by the company on January 01, 2011.
Cost Rs. 200,000
Sales price (quoted) Rs. 240,000
Installment at the end of each year Rs. 40,000
Lease term 7 years
Unguaranteed residual value Rs. 2,000

Initial direct costs Rs. 1,000
Rate of interest (quoted) 4%
(the low rate is quoted to attract customers)
The market rate of interest 7%
What is the amount to be charged in cost of sales in respect of the above transaction on January 01,
2011?

DJ Products deals in large office machines. It also offers such machines on lease. One such
machine was leased to a customer on July 1, 2004. Its particulars are as follows:
The purchase cost of DJ Products Rs. 150,000
Useful life 8 years
Lease period 6 years
Unguaranteed residual value Rs. 10,000
The annual rental was payable at beginning of each year Rs. 36,500
The customer’s incremental borrowing rate is 10% whereas the discounting rate implicit in the lease
is 8%.
What is the amount of net investment in a lease that should be recognized on 1st July 2004?

Guava Leasing Limited (GLL), had leased machinery to Honeyberry Limited (HL) on 1 July 2017
on the following terms:
(i) The non-cancellable lease period is 3.5 years. Each semi-annual lease installment of
Rs. 48 million is receivable in arrears.
(ii) The lease contains an option to extend the lease term by 1.5 years. Each semiannual
lease installment in the extended period will be Rs. 15 million, receivable in arrears.
It is reasonably certain that HL will exercise this option.
(iii) The rate implicit in the lease is 10% per annum.
(iv) The useful life of machinery is 6 years.
(v) The unguaranteed residual value at the end of the lease term is estimated at Rs. 20 million.
GLL incurred a direct cost of Rs. 10 million and general overheads of Rs. 0.5 million to
complete the transaction.
(vi) The net investment in lease at the inception of the lease has been calculated i.e. Rs. 319.06
million
What is the amount of interest income to be recognized in profit or loss for the year ended 30 June
2018?

Which of the following should NOT be included in the initial cost of a right-of-use asset?

Wood Leasing Limited leased certain equipment on 1 July 2018. In this respect, the following information is available:

Rs. in million

The fair value of equipment                                                                                                                                                    67.00

Amount received on 1 July 2018                                                                                                                                              5.50

Four annual instalments payable in arrears                                                                                                                        20.00

Guaranteed residual value on expiry of the lease                                                                                                               10.00

The useful life of the equipment is estimated at 5 years. The implicit rate in the lease is 16%. What amount of net investment in the lease will be presented in non-current assets as of 30 June 2019?

Zameer Ansari is a car dealer. Cars are sold both on a cash and finance lease basis. He has been selling a car on the following terms:

Fair value Rs. 5,000,000

Annual lease rental in arrears Rs. 1,646,199

Market rate 12% per annum

Lease term 4 years

What would be the effect on sales revenue and finance income if the annual lease rental is increased to Rs. 1.8 million and all other terms remain the same?

An entity acquires property on lease for a non-cancellable period of 3 years. The lease payments are payable semi-annually in arrears beginning from the first year. What would be the impact of this transaction on the lessee’s current and gearing ratios upon commencement of lease?

Which of the following is one of the conditions set out in IFRS 16 for an arrangement to be classified as a finance lease?