CHAPTER 11 FINANCE LEASE LESSEE

Problem 11 1 Multiple Choice (PAS 17)

1. It is a contract that transfers substantially all the risks and rewards incidental to
ownership of an asset, although title may or may not eventually be transferred.

a. Lease
b. Finance lease
c. Operating lease
d. Lease purchase

2. The inception of the lease is the

a. Date of the lease agreement.

b. Date of commitment by the parties to the principal provisions of the lease
c. Earlier of the date of the lease agreement or date of commitment by the parties
to the principal provisions of the lease
d. Later of the date of the lease agreement or date of commitment by the parties to
the principal provisions of the lease

3. It is the date on which the lessee is entitled to exercise the right to use the leased
asset.

a. Inception of the lease

b. Commencement of the lease
c. Date of lease agreement
d. Date of commitment to the provisions of the lease

4. The situations which would normally lead to a lease being classified as a finance
lease include all of the following, except

a. The lease transfers ownership of the lessee by the end of the lease term
b. The lessee has the option to purchase the asset at a price which would be
expected to be sufficiently higher than the fair value at the date the option
becomes exercisable.
c. The lease term is for the major part of the economic life of the asset even if title
is not transferred.
d. The present value of the minimum lease payments amounts to at least
 substantially all of the fair value of the leased asset at the inception of the
lease.

5. Situations which individually or in combination could also lead to a lease being

classified as finance lease include all of the following, except

a. The leased asset is of a specialized nature such as that only the lessee can use it
without major modification.
b. If the lessee cancels the lease, the lessors losses associated with the
cancelation are borne by the lessee.
c. Gains or losses from the fluctuation in the fair value of the residual accrue to
the lessee
d. The lessee has the ability to continue the lease for a secondary period at a rent
which is substantially the same as the market rent.

6. At the commencement of the lease term, the lessee shall recognize a finance lease
as asset and liability at an amount equal to the

a. Fair value of the leased asset

b. Present value of the minimum lease payment.

c. Fair value of the asset or present value of the minimum lease payments,
whichever is lower.
d. Fair value of the asset or present value of the minimum lease payments,
whichever is higher.

7. The minimum lease payments include all the following, except

a. Rental payments over the lease term

b. Any amount guaranteed by the lessee or by a party related to the lessee
c. Payment required to exercise an option on the part of the lessee to purchase the
asset at a price expected to be sufficiently lower than its fair value at the
option exercise date.
d. Contingent rent

8. It is that portion of the lease payment that is not fixed in amount but is based on a
factor other than just the passage of time, for example, percentage of sales, amount
of usage, price index and market rate of interest.

a. Variable rent
b. Contingent rent
 c. Bargain purchase option
d. Executory cost

9. Which of the following statements in relation to a finance lease is true?

I. Any initial direct costs incurred by a lessee are added to the amount of the
liability recognized in the statement of financial position.
II. Any initial direct costs incurred by a lessee are added to the amount of the
asset recognized in the statement of financial position.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

10. If there is reasonable certainty that the lessee will obtain ownership by the end of
the lease term, the depreciation of the leased asset is based on the

a. Useful life of the asset

b. Lease term
c. Useful life of the asset or lease term, whichever is shorter
d. Useful life of the asset or lease term, whichever is longer