Question Tag: Finance lease

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MGE – Nov 2014 – L2 – Q7 – Risk Management and Corporate Strategy

Assessing risk in importing machinery and comparing finance vs. operating lease strategies for construction equipment.

Question

EXPEE CONSTRUCTION PLC.

Expee Construction Plc. has been awarded a contract to construct a 50-kilometer feeder road from Abekoko to Idi Magoro by Adatan State. Unfortunately, the company’s earth-moving machine (bulldozer) suffered a major mechanical fault, making it impossible to mobilize to the site for execution of the contract.

Similar machines are not available for sale in the open market. Management is therefore considering the option of either importing a new machine from Japan or leasing one from Odogunyan Machines Limited located in Eko-Akete. The lease may be a finance or operating lease; either option would release the machine to the lessee for immediate use. Management’s decision on this choice is dependent on its willingness to either retain or transfer the risks involved in the usage of the machine.

Required:

a. Evaluate the risk exposure of the company in adopting the import option.
(5 Marks)

b. Identify and formulate strategies that might be used by the company in managing:

i. The finance lease option
(5 Marks)

ii. The operating lease option
(5 Marks)

Answer

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Tags: Equipment Acquisition, Finance lease, Import Options, Operating Lease, Risk Exposure
Level: Level 2

Topic: Risk Management and Corporate Strategy

BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets

Explanation of loan covenants, reasons and benefits for share repurchase, and features of a finance lease arrangement.

Question

(a) For many loan agreements, the borrower is required to provide undertakings or guarantees of some kind.
Distinguish between covenants and guarantees. (5 Marks)

(b) State THREE reasons why a company will repurchase its shares and THREE benefits that will accrue to the company for doing so. (6 Marks)

(c) Companies can acquire assets with finance lease instead of buying assets with equity or debt capital.
State SIX main features of a finance lease arrangement. (9 Marks)

(Total 20 Marks)

Answer

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Tags: Corporate finance, Finance lease, Guarantees, Loan Covenants, Share repurchase
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

FR – Nov 2014 – L2 – Q4b-Q4c – Leases (IFRS 16)

Recommend lease type for Island Plc, illustrate lease differences, and calculate lease rental and finance charge.

Question

Island Plc, an international airline operating in Nigeria, intends to lease a Boeing 747 from KLM Leasing Ltd. The lease terms include:

Lease period: 5 years
Quarterly rental: N150 million
Aircraft cost: N500 million
Useful life of aircraft: 20 years
Scrap value: Nil
Maintenance by KLM Leasing Ltd

Required:

b. i. Recommend the most appropriate lease arrangement for Island Plc, giving reasons. (2 Marks)

ii. Describe the differences between the recommended lease type and another lease type per IAS 17. (5 Marks)

c. i. Calculate the total lease rental over the lease period. (1 Mark)

ii. Determine the finance charge for the lease period. (2 Marks)

Answer

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Tags: Finance lease, Financial Reporting, Lease Arrangement, Lease Calculations, Operating Lease
Level: Level 2

Topic: Leases (IFRS 16)
Series: NOV 2014

FR – NOV 2016 – L2 – Q6a – Leases (IFRS 16)

Question tests understanding of the two types of leases under IAS 17 and their key differences.

Question

Identify the TWO kinds of leases stipulated in IAS 17 and compare in tabular form with at least FIVE differences.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Finance lease, Lease Accounting, Lease Classification, Operating Lease
Level: Level 2

Topic: Leases
Series: NOV 2016

BMF – Nov 2023 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets

Identify the correct feature of a finance lease.

Question

Which of the following is TRUE of a finance lease?

A. The leased asset is reported in the statement of financial position of the lessor as a non-current asset
B. The lessor is responsible for insurance running and maintenance costs for the asset
C. The purchase cost of the leased asset is paid by the lessor
D. The lessee cannot claim the tax depreciation allowances
E. The lessee is the legal owner of the asset

Answer

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Tags: Finance lease, Financial Reporting, Leasing
Level: Level 1

Series: NOV 2023

FR – Nov 2019 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculation and accounting entries for lease under IFRS 16 in the financial statements of Asawase Ltd.

Question

On 1 August 2018, Asawase Ltd entered into an agreement to acquire a motor vehicle. The terms of the agreement were that the vehicle would be leased for five years from the date of inception, subject to a deposit of GH¢19,972 and five annual payments of GH¢6,500 in advance, commencing on 1 August 2018. The fair value of the vehicle and the present value of the lease payments were GH¢48,000 at inception. The interest rate implicit in the lease is 8%.

Required:
In accordance with IFRS 16: Leases, show with appropriate calculations, the accounting entries required to record the transaction in the financial statements for the year ended 31 July 2019. (7 marks)

Answer

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Tags: Depreciation, Finance lease, Financial Reporting, IFRS 16, Lease Accounting

Series: NOV 2019

FR – Nov 2016 – L2 – Q2a – Financial Reporting Standards and Their Applications

Prepare financial statement extracts showing how the lease transaction of Asokwa Ltd should be treated for the year ended 31 December 2014.

Question

You are employed as the Financial Accountant for Asokwa Ltd. Asokwa Ltd leased a new piece of equipment from Amakom Ltd for three years commencing on 30 September 2014. The fair value of the equipment is GH¢70,000. A deposit of GH¢4,000 was payable on 30 September 2014 followed by six half-yearly payments of GH¢13,500, payable in arrears, and commencing on 31 March 2015. Asokwa Ltd allocates finance charges on a sum of the period digits basis.

Required:
Prepare financial statement extracts showing how the lease transaction of Asokwa Ltd should be treated for the year ended 31 December 2014.

Answer

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Tags: Finance lease, Financial Statements, IFRS 16, Lease Accounting
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2016

PT – July 2023 – L2 – Q4b – Corporate Tax Liabilities

Advice on the tax implications of setting up as a subsidiary vs permanent establishment, finance leasing, and paying employees.

Question

The management of Chika Plc, a United Kingdom (UK) based Company, is considering the possibility of launching its presence into Ghana and it is not too sure of the tax implications of the following in light of the tax laws of Ghana:

Required:
Advise on the tax implications of each one of them to enable management of Chika Plc to take a decision. (8 marks)

Answer

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Tags: Corporate Tax, Employment, Finance lease, Permanent Establishment, Subsidiary
Level: Level 2

Topic: Corporate Tax Liabilities
Series: JULY 2023

AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation

Tax policy implications on the establishment of a permanent entity, finance lease acquisitions, and dividend policies by a foreign company.

Question

The management of Smith Plc, a UK-based company, is considering the possibility of launching its presence in Ghana and it is not sure of the tax implication of the following under the tax laws of Ghana:

i) It is considering making its presence through incorporation in Ghana or creating an external company that is a Permanent Establishment (Branch) instead.
ii) It intends to acquire all its non-current assets through finance lease as against buying the assets outright when it makes its presence in Ghana.
iii) It intends to bring some staff from the United Kingdom to work in Ghana who will be paid half salary in Ghana and the other half paid directly to their accounts in the United Kingdom as against paying their full salary in Ghana.
iv) Management intends to acquire shares in many companies in Ghana as part of efforts to create value for shareholders through dividend receipts as against granting loans to interested companies in Ghana if it is unable to make its presence in Ghana.

Required:
Evaluate the above policy interventions and advise on the tax implication of each to enable the management of Smith Plc to make a decision.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividends, Finance lease, Incorporation, Non-current Assets, Permanent Establishment, Tax implications
Level: Level 3

Topic: International taxation, Permanent establishment
Series: NOV 2018

TX – May 2019 – L3 – Q3B – Tax planning

Discuss the tax implications of finance lease arrangements, particularly concerning the eligibility for capital allowance under the Income Tax Act 2015 (Act 896).

Question

b) At a tax seminar organised by The Institute of Chartered Accountants (Ghana) in December 2016, the issue of tax implications for finance lease arrangement dominated the discussion. The facilitator said that both the lessor and the lessee shall be denied capital allowance under the tax law.

The facilitator intimated that capital allowance is granted to persons who acquire assets and own them and use such to generate business income. Both the lessor and the lessee, consequently do not qualify for capital allowance under the Income Tax Act (Act 896), 2015 and its regulations, he added.

Required:
As a tax advisor, submit a response to the above based on the tax provisions. The response is to be published in the Institute’s Journal. (7 marks)

Answer

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Tags: Capital Allowance, Depreciable assets, Finance lease, Income Tax Act 2015 (Act 896), Tax deduction
Level: Level 3

Topic: Tax planning
Series: MAY 2019

MGE – Nov 2014 – L2 – Q7 – Risk Management and Corporate Strategy

Assessing risk in importing machinery and comparing finance vs. operating lease strategies for construction equipment.

Question

EXPEE CONSTRUCTION PLC.

Required:

a. Evaluate the risk exposure of the company in adopting the import option.
(5 Marks)

b. Identify and formulate strategies that might be used by the company in managing:

i. The finance lease option
(5 Marks)

ii. The operating lease option
(5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Equipment Acquisition, Finance lease, Import Options, Operating Lease, Risk Exposure
Level: Level 2

Topic: Risk Management and Corporate Strategy

BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets

Explanation of loan covenants, reasons and benefits for share repurchase, and features of a finance lease arrangement.

Question

(a) For many loan agreements, the borrower is required to provide undertakings or guarantees of some kind.
Distinguish between covenants and guarantees. (5 Marks)

(b) State THREE reasons why a company will repurchase its shares and THREE benefits that will accrue to the company for doing so. (6 Marks)

(c) Companies can acquire assets with finance lease instead of buying assets with equity or debt capital.
State SIX main features of a finance lease arrangement. (9 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate finance, Finance lease, Guarantees, Loan Covenants, Share repurchase
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

FR – Nov 2014 – L2 – Q4b-Q4c – Leases (IFRS 16)

Recommend lease type for Island Plc, illustrate lease differences, and calculate lease rental and finance charge.

Question

Island Plc, an international airline operating in Nigeria, intends to lease a Boeing 747 from KLM Leasing Ltd. The lease terms include:

Lease period: 5 years
Quarterly rental: N150 million
Aircraft cost: N500 million
Useful life of aircraft: 20 years
Scrap value: Nil
Maintenance by KLM Leasing Ltd

Required:

b. i. Recommend the most appropriate lease arrangement for Island Plc, giving reasons. (2 Marks)

ii. Describe the differences between the recommended lease type and another lease type per IAS 17. (5 Marks)

c. i. Calculate the total lease rental over the lease period. (1 Mark)

ii. Determine the finance charge for the lease period. (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Finance lease, Financial Reporting, Lease Arrangement, Lease Calculations, Operating Lease
Level: Level 2

Topic: Leases (IFRS 16)
Series: NOV 2014

FR – NOV 2016 – L2 – Q6a – Leases (IFRS 16)

Question tests understanding of the two types of leases under IAS 17 and their key differences.

Question

Identify the TWO kinds of leases stipulated in IAS 17 and compare in tabular form with at least FIVE differences.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Finance lease, Lease Accounting, Lease Classification, Operating Lease
Level: Level 2

Topic: Leases
Series: NOV 2016

BMF – Nov 2023 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets

Identify the correct feature of a finance lease.

Question

Which of the following is TRUE of a finance lease?

Answer

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Tags: Finance lease, Financial Reporting, Leasing
Level: Level 1

Series: NOV 2023

FR – Nov 2019 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculation and accounting entries for lease under IFRS 16 in the financial statements of Asawase Ltd.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Finance lease, Financial Reporting, IFRS 16, Lease Accounting

Series: NOV 2019

FR – Nov 2016 – L2 – Q2a – Financial Reporting Standards and Their Applications

Prepare financial statement extracts showing how the lease transaction of Asokwa Ltd should be treated for the year ended 31 December 2014.

Question

Required:
Prepare financial statement extracts showing how the lease transaction of Asokwa Ltd should be treated for the year ended 31 December 2014.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Finance lease, Financial Statements, IFRS 16, Lease Accounting
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2016

PT – July 2023 – L2 – Q4b – Corporate Tax Liabilities

Advice on the tax implications of setting up as a subsidiary vs permanent establishment, finance leasing, and paying employees.

Question

Required:
Advise on the tax implications of each one of them to enable management of Chika Plc to take a decision. (8 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Tax, Employment, Finance lease, Permanent Establishment, Subsidiary
Level: Level 2

Topic: Corporate Tax Liabilities
Series: JULY 2023

AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation

Tax policy implications on the establishment of a permanent entity, finance lease acquisitions, and dividend policies by a foreign company.

Question

Required:
Evaluate the above policy interventions and advise on the tax implication of each to enable the management of Smith Plc to make a decision.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividends, Finance lease, Incorporation, Non-current Assets, Permanent Establishment, Tax implications
Level: Level 3

Topic: International taxation, Permanent establishment
Series: NOV 2018

TX – May 2019 – L3 – Q3B – Tax planning

Discuss the tax implications of finance lease arrangements, particularly concerning the eligibility for capital allowance under the Income Tax Act 2015 (Act 896).

Question

Required:
As a tax advisor, submit a response to the above based on the tax provisions. The response is to be published in the Institute’s Journal. (7 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Allowance, Depreciable assets, Finance lease, Income Tax Act 2015 (Act 896), Tax deduction
Level: Level 3

Topic: Tax planning
Series: MAY 2019

Question Tag: Finance lease

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MGE – Nov 2014 – L2 – Q7 – Risk Management and Corporate Strategy

Assessing risk in importing machinery and comparing finance vs. operating lease strategies for construction equipment.

You're reporting an error for "MGE – Nov 2014 – L2 – Q7 – Risk Management and Corporate Strategy"

BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets

Explanation of loan covenants, reasons and benefits for share repurchase, and features of a finance lease arrangement.

You're reporting an error for "BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets"

FR – Nov 2014 – L2 – Q4b-Q4c – Leases (IFRS 16)

Recommend lease type for Island Plc, illustrate lease differences, and calculate lease rental and finance charge.

You're reporting an error for "FR – Nov 2014 – L2 – Q4b-Q4c – Leases (IFRS 16)"

FR – NOV 2016 – L2 – Q6a – Leases (IFRS 16)

Question tests understanding of the two types of leases under IAS 17 and their key differences.

You're reporting an error for "FR – NOV 2016 – L2 – Q6a – Leases (IFRS 16)"

BMF – Nov 2023 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets

Identify the correct feature of a finance lease.

You're reporting an error for "BMF – Nov 2023 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets"

FR – Nov 2019 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculation and accounting entries for lease under IFRS 16 in the financial statements of Asawase Ltd.

You're reporting an error for "FR – Nov 2019 – L2 – Q2c – Financial Reporting Standards and Their Applications"

FR – Nov 2016 – L2 – Q2a – Financial Reporting Standards and Their Applications

Prepare financial statement extracts showing how the lease transaction of Asokwa Ltd should be treated for the year ended 31 December 2014.

You're reporting an error for "FR – Nov 2016 – L2 – Q2a – Financial Reporting Standards and Their Applications"

PT – July 2023 – L2 – Q4b – Corporate Tax Liabilities

Advice on the tax implications of setting up as a subsidiary vs permanent establishment, finance leasing, and paying employees.

You're reporting an error for "PT – July 2023 – L2 – Q4b – Corporate Tax Liabilities"

AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation

Tax policy implications on the establishment of a permanent entity, finance lease acquisitions, and dividend policies by a foreign company.

You're reporting an error for "AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation"

TX – May 2019 – L3 – Q3B – Tax planning

Discuss the tax implications of finance lease arrangements, particularly concerning the eligibility for capital allowance under the Income Tax Act 2015 (Act 896).

You're reporting an error for "TX – May 2019 – L3 – Q3B – Tax planning"

MGE – Nov 2014 – L2 – Q7 – Risk Management and Corporate Strategy

Assessing risk in importing machinery and comparing finance vs. operating lease strategies for construction equipment.

You're reporting an error for "MGE – Nov 2014 – L2 – Q7 – Risk Management and Corporate Strategy"

BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets

Explanation of loan covenants, reasons and benefits for share repurchase, and features of a finance lease arrangement.

You're reporting an error for "BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets"

FR – Nov 2014 – L2 – Q4b-Q4c – Leases (IFRS 16)

Recommend lease type for Island Plc, illustrate lease differences, and calculate lease rental and finance charge.

You're reporting an error for "FR – Nov 2014 – L2 – Q4b-Q4c – Leases (IFRS 16)"

FR – NOV 2016 – L2 – Q6a – Leases (IFRS 16)

Question tests understanding of the two types of leases under IAS 17 and their key differences.

You're reporting an error for "FR – NOV 2016 – L2 – Q6a – Leases (IFRS 16)"

BMF – Nov 2023 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets

Identify the correct feature of a finance lease.

You're reporting an error for "BMF – Nov 2023 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets"

FR – Nov 2019 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculation and accounting entries for lease under IFRS 16 in the financial statements of Asawase Ltd.

You're reporting an error for "FR – Nov 2019 – L2 – Q2c – Financial Reporting Standards and Their Applications"

FR – Nov 2016 – L2 – Q2a – Financial Reporting Standards and Their Applications

Prepare financial statement extracts showing how the lease transaction of Asokwa Ltd should be treated for the year ended 31 December 2014.

You're reporting an error for "FR – Nov 2016 – L2 – Q2a – Financial Reporting Standards and Their Applications"

PT – July 2023 – L2 – Q4b – Corporate Tax Liabilities

Advice on the tax implications of setting up as a subsidiary vs permanent establishment, finance leasing, and paying employees.

You're reporting an error for "PT – July 2023 – L2 – Q4b – Corporate Tax Liabilities"

AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation

Tax policy implications on the establishment of a permanent entity, finance lease acquisitions, and dividend policies by a foreign company.

You're reporting an error for "AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation"

TX – May 2019 – L3 – Q3B – Tax planning

Discuss the tax implications of finance lease arrangements, particularly concerning the eligibility for capital allowance under the Income Tax Act 2015 (Act 896).

You're reporting an error for "TX – May 2019 – L3 – Q3B – Tax planning"

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