Question

Are the follow statements True or False?

A:Under the new Lease Accounting rules US GAAP provides NO exception to recording the lease contract “on balance sheet.”

B:In a Lease Contract, the lessor is considered to retain a Right of Use Asset.

C:There are two times during the term or life of the lease contract when the Lessee should normally expect the Right of Use asset account to equal the Lease Obligation liability account: at the start of the lease and at the end of the lease term

D:If a Lessee wants to avoid the multiple Income impacts of finance lease accounting, then it should modify the lease contract, with the agreement of the Lessor, so that the contract is classified as an Operating Lease. The reason for this is that an Operating Lease requires the Lessee to show one simple Lease expense every period and as long as the annual lease payments are the same, this Lease expense should be the same every period during the lease term. This is considered to be the “most favorable” Income Statement accounting for a Lessee’s lease under the new lease accounting rules.

Answer 1

Statements	True/False	Reason
A.Under the new Lease Accounting rules US GAAP provides NO exception to recording the lease contract “on balance sheet.”	FALSE	The guidance in IFRS 16/GAAP requires all leases to be recognized on the balance sheet, but it allows for two exemptions/Exceptions:- Short-term leases Low-value leases Both the IASB and the FASB define short-term leases as those whose term is one-year or less. 2nd exemption: low-value leases. IFRS 16/GAAP provides lessees with an election not to recognize a right-of-use asset and lease liability for leases for which the underlying asset is of low value.
B.In a Lease Contract, the lessor is considered to retain a Right of Use Asset.	FALSE	RoU is an asset representing lessee’s right to use the leased asset during the lease term. -In a Lease Contract, the Lessee is considered to retain a Right of Use Asset.
C.There are two times during the term or life of the lease contract when the Lessee should normally expect the Right of Use asset account to equal the Lease Obligation liability account: at the start of the lease and at the end of the lease term	TRUE	-Lease liability is calculated using the present value of the lease payments over the lease term discounted, typically, using the lessee’s incremental borrowing rate. -The right-of-use asset represents a lessee’s license to hold, operate, or occupy a leased item over the term of the lease. -The ROU asset is calculated with the following steps: The initial amount of the lease liability Plus lease payments made before lease commencement Plus initial direct costs Less any lease incentives -NORMALLY, ROU asset will be equal with Lease liability on Initial date or on start of the lease. -At end of the lease the ROU asset will be fully depreciated and the the lease liability will also be fully paid. Hence at the end of the lease the ROU asset and lease liability both will be equal to zero.
D.If a Lessee wants to avoid the multiple Income impacts of finance lease accounting, then it should modify the lease contract, with the agreement of the Lessor, so that the contract is classified as an Operating Lease. The reason for this is that an Operating Lease requires the Lessee to show one simple Lease expense every period and as long as the annual lease payments are the same, this Lease expense should be the same every period during the lease term. This is considered to be the “most favorable” Income Statement accounting for a Lessee’s lease under the new lease accounting rules.	FALSE	-Under the new lease accounting rules or IFRS 16, the lessee should recognise ROU Assets and Lease Liability, whetheer it is a Operating lease or Finance Lease. - ROU asset to be depreciated over lease term and Interest Expenses to be charged on the lease liability and lease payment to be adjusted with lease liability. -Lease liability is calculated using the present value of the lease payments over the lease term discounted, typically, using the lessee’s incremental borrowing rate. -The right-of-use asset represents a lessee’s license to hold, operate, or occupy a leased item over the term of the lease. -Whether the Lessee accounts for the Lease under Operating lease or Finance lease , the lessee needs to Recognise both ROU assets and Lease Liability.