Chapter 12: Leases (IFRS 16)

Lessee accounting. On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has a useful life of six years. The annual lease payments are $5,000 per annum, with the first payment made on 1 January 2015. To obtain the lease Plum incurs initial direct costs of $1,000 in relation to the arrangement of the lease but the lessor agrees to reimburse Plum $500 towards the costs of the lease. The rate implicit in the lease is 5%. The present value of the minimum lease payments is $22,730. Demonstrate how the lease will be accounted for over the five year period.

Future lease payments. Peach leased an item of equipment for a period of 5 years from the start of its financial year, 1 January 2019. An initial payment of $4,000 was made on 1 January 2019 and then a series of four future payments were made each year on 1 January. The rate implicit in the lease is 3% and the present value of the FUTURE lease payments is $14,868. The asset has a useful life of 5 years. Prepare extracts for the year ended 31 December 2019.

Low-value assets. Banana leases out a machine to Guava under a four year lease and Guava elects to apply the low-value exemption. The terms of the lease are that the annual lease rentals are $2,000 payable in arrears. As an incentive, Banana grants Guava a rent-free period in the first year. Explain how Guava would account for the lease.

Schedules are rounded to the nearest $ each year.