Question One

Discuss the main improvements brought about by the introduction of IFRS 16, when it replaced IAS 37? (3 marks)

Question Two

ABC, a manufacturing company, needs to adopt the new standard IFRS 16 Leases in the reporting period ending 31 December 2019.

ABC entered into the leasing contract on 1 January 2019 for 5 years. The annual rental payments are $100, 000 in arrears (that is, 31 December each year). At the end of the lease term, the machine will be returned to the lessor. The economic life of the machine is 5 years. The lessors implicit interest rate, which is known to ABC, is 3%.

Instructions

(a) What is the lease liability for ABC Company? (2 marks)

(b) Record the lease on ABC Companys books at the date of inception. (2 marks)

(c) Prepare a lease amortization schedule. (4 marks)

(d) Record the first years depreciation on ABC Companys books (assume straight-line). (2 marks)

(e) Record interest expense and lease liability for ABC Company for the year ending December 31, 2019. (3 marks)

(f) Show the Statement of Comprehensive Income and Statement of Financial Position extracts for ABC Company for December 31, 2019. (4 marks)