Problem 11 2 Multiple Choice (PAS 17)

1. The interest rate implicit in the lease is the discount rate that causes the aggregate
of the present value of the minimum lease payments and the unguaranteed residual
value to be equal to the

a. Fair value of the leased asset.

b. Fair value of the leased asset and initial direct cost of the lessor.
c. Fair value of the leased asset and initial direct cost of the lessee.
d. Gross investment in the lease.

2. It is that portion of the residual value of the leased asset, the realization of which by
the lessor is not assured or is guaranteed solely by a party related to the lessor.

a. Residual value
b. Guaranteed residual value
c. Unguaranteed residual value
d. Minimum lease payment

3. It is that part of the residual value that is guaranteed by the lessee or by a party
related to the lessee, the amount of any guarantee being the maximum amount that
could in any event become payable.

a. Bargain purchase option

b. Residual value
c. Guaranteed residual value
d. Unguaranteed residual value

4. Which of the following statements is true regarding land and building lease?

I. A land lease with a lease term of several decades or longer may be classified as
a finance lease even if title will not pass to the lessee at the end of lease term.

II. When a lease includes both land and building, an entity shall determine the
classification of the land lease and building lease based on the classification
criteria taking into account that land normally has an indefinite economic life.

a. I only
b. II only
c. Both I and II
d. Neither I nor II
5. A cancellable lease is deemed noncancelable under all of the following conditions,
except

a. The lease can be cancelled only upon the occurrence of a remote contingency
b. The lease can be cancelled without the permission of the lessor.
c. The lessee, upon cancelation, enters into a new lease for the same or an
equivalent asset with the same lessor.
d. The lease can be cancelled only upon the payment of a penalty of such
magnitude that the lessee shall be discouraged from cancelling the lease.