Page 500 - F2 Integrated Workbook STUDENT 2019

F2: Advanced Financial Reporting

CHAPTER 6 – LEASES

6.1 JS leases a machine over a 5 year lease term from BH from 1st December
20X5. Rental payments are made in advance for $50,000. The useful
lifetime of the asset is 7 years. A lease arrangement fee of $1,000 was
incurred by JS. The rate implicit within the lease cannot be readily
determined but the rate of incremental borrowing for JS is 8%. JS returns
the machine at the end of the lease term.

Which one of the following statements is true in relation to the lease
arrangement?

A JS would classify the lease as a finance lease as the lease term is the
majority of the useful lifetime of the leased asset

B A lease liability would be initially recorded at $199,650

C The right-of-use asset would be depreciated over 7 years

D The $1,000 lease arrangement fee would be initially included in the right-
of-use asset’s value

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