Right-of-Use Assets – NBC Institute

CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)

Memo on IFRS 16 changes and right-of-use assets treatment for Ododoeye PLC

Question

As the financial controller of Ododoeye PLC, an NGX-quoted company, you are preparing the financial statements for the year ended March 31, 2023. Chief Okechukwu, the finance director, has requested the following information about the treatment of the company’s leased assets in view of IFRS 16-Leases:

Chief Okechukwu noticed a new component in the financial statements titled “right-of-use” relating to a leased warehouse. This component did not appear in previous years’ statements and has raised questions on its treatment under IFRS 16 compared to IAS 17.

Required:

Write an internal memo addressing Chief Okechukwu’s concerns and explaining:

The key changes under IFRS 16 related to right-of-use assets.
Accounting treatments for the right-of-use assets.
Financial statement impact of right-of-use assets.

Answer

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Tags: Corporate Reporting, Financial Statements, IFRS 16, Leases, NGX-Quoted Company, Right-of-Use Assets
Level: Level 3

Topic: Leases (IFRS 16)
Series: MAY 2024

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

Question

b) Kundugu Ltd (Kundugu) is a manufacturing company located in the Savannah Region. The reporting date of Kundugu is 31 December, and the company reports under International Financial Reporting Standards (IFRSs). Kundugu intends to expand its production to take advantage of emerging economic activities in the new region.

On 1 January 2020, the company entered into a lease agreement for production equipment with a useful economic life of 8 years. The lease term is for four years, and Kundugu agrees to pay annual rent of GH¢50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5%, and the lessee’s incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GH¢130,026. Kundugu paid legal fees of GH¢1,000 to set up the lease.

Required:
Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for 2020 and 2021, showing how Kundugu should account for this transaction. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Finance Costs, IFRS 16, Lease Accounting, Lease Liabilities, Right-of-Use Assets, Statement of Financial Position
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: APR 2022

FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identification of key principles behind the accounting treatment for leases under IFRS 16.

Question

IFRS 16: Leases was issued in January 2016 and is effective for accounting periods beginning on or after 1 January 2019. However, early adoption is permitted, provided IFRS 15: Revenue from Contracts with Customers is implemented also. This standard applies to all leases, except those shorter than 12 months and small assets. It also brings additional disclosure requirements for both lessees and lessors. The IFRS brings significant changes to those leases formerly classified as operating leases under IAS 17: Leases, the previous standard.

Required:

Identify THREE (3) key principles behind the accounting treatment for leases as required by IFRS 16.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Liabilities, IFRS 16, Leases, Right-of-Use Assets
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2019

CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)

Memo on IFRS 16 changes and right-of-use assets treatment for Ododoeye PLC

Question

Chief Okechukwu noticed a new component in the financial statements titled “right-of-use” relating to a leased warehouse. This component did not appear in previous years’ statements and has raised questions on its treatment under IFRS 16 compared to IAS 17.

Required:

Write an internal memo addressing Chief Okechukwu’s concerns and explaining:

The key changes under IFRS 16 related to right-of-use assets.
Accounting treatments for the right-of-use assets.
Financial statement impact of right-of-use assets.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Reporting, Financial Statements, IFRS 16, Leases, NGX-Quoted Company, Right-of-Use Assets
Level: Level 3

Topic: Leases (IFRS 16)
Series: MAY 2024

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

Question

Required:
Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for 2020 and 2021, showing how Kundugu should account for this transaction. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Finance Costs, IFRS 16, Lease Accounting, Lease Liabilities, Right-of-Use Assets, Statement of Financial Position
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: APR 2022

FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identification of key principles behind the accounting treatment for leases under IFRS 16.

Question

Required:

Identify THREE (3) key principles behind the accounting treatment for leases as required by IFRS 16.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Liabilities, IFRS 16, Leases, Right-of-Use Assets
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2019

Question Tag: Right-of-Use Assets

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CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)

Memo on IFRS 16 changes and right-of-use assets treatment for Ododoeye PLC

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identification of key principles behind the accounting treatment for leases under IFRS 16.

CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)

Memo on IFRS 16 changes and right-of-use assets treatment for Ododoeye PLC

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identification of key principles behind the accounting treatment for leases under IFRS 16.

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Question Tag: Right-of-Use Assets

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CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)

Memo on IFRS 16 changes and right-of-use assets treatment for Ododoeye PLC

You're reporting an error for "CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)"

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

You're reporting an error for "FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications"

FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identification of key principles behind the accounting treatment for leases under IFRS 16.

You're reporting an error for "FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications"

CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)

Memo on IFRS 16 changes and right-of-use assets treatment for Ododoeye PLC

You're reporting an error for "CR – May 2024 – L3 – SB – Q4b – Leases (IFRS 16)"

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

You're reporting an error for "FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications"

FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identification of key principles behind the accounting treatment for leases under IFRS 16.

You're reporting an error for "FR – May 2019 – L2 – Q2e – Financial Reporting Standards and Their Applications"

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