Ifrs 16 Lease Seminar Qns 2

MZUMBE UNIVERSITY
SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
IFRS 16 – LEASE SEMINAR QUESTION
QUESTION ONE
Verolosa cafeteria (Customer) enters into a contract with an Mzumbe university
(Supplier) to use a space in Mzumbe university premise to sell different dishes
and soft drink for a three-year period. The contract states the amount of space
and that the space may be located at any one of several building and halls
within the University campus. Customers have an option to choose among
different places in the campus. Mzumbe University has the right to change the
location of the space allocated to Customer at any time during the period of
use. There are minimal costs to Supplier associated with changing the space
for the Customer: There are many areas in the campus that are available and
that would meet the specifications for the space in the contract.
Required: Identify if the contract is lease or contain lease agreement.
QUESTION TWO
Customer enters into a contract with Supplier to purchase all of the power
produced by an explicitly specified power plant for 10 years. The contract
states that Customer has rights to all of the power produced by the plant (i.e.
Supplier cannot use the plant to fulfill other contracts). Customer issues
instructions to Supplier about the quantity and timing of the delivery of power.
If the plant is not producing power for Customer, it does not operate. Supplier
operates and maintains the plant on a daily basis in accordance with industry-
approved operating practices.
Required: Identify if the contract is lease or contain lease agreement.
QUESTION THREE
On January 2021, Marambau entered into two year lease for the lorry.
The contract contains option to extend lease terms for further year.
Marambau believe that it’s reasonable certain to exercise this option.
Lorries has useful life of ten years.
Lease payment is TZS 10,000,000 per year for the initial term and
15,000,000 per year for the optional period. All period are due at the end
of the year. To obtain the lease, dynamic incurs initial direct cost of TZS
3,000,000. The interest rate between the leases is not readily
determined. Marambau incremental rate of borrowing is 5%.
Required: Calculate Initial carrying amount of

i) Lease liability
ii) Right of use asset
iii) Provide double entries needed to record these amounts in
Marambau financial records.
QUESTION FOUR (CPA Ireland)

IFRS 16 - Leases was issued in January 2016 and is effective for accounting
periods beginning on or after 1 January 2019. The IFRS brings significant
changes to those leases formerly classified as operating leases under IAS 17 -
Leases, the previous standard.
(i) On 1 August 2017, Manfred Plc. entered into an agreement to lease a

building for a 10-year period. The lease terms stipulated that the
annual lease rental would be TZS 100,000 per annum in arrears, with
the first payment due on 31 July 2018. The interest rate implicit in
the lease is 7%, and the present value of the minimum lease
payments is TZS 702,358. Manfred incurred costs of TZS 30,000 in
entering the lease. The lease terms allow for the extension of the lease
at market rental. However, it is not certain that Manfred will take up
this option.
(ii) On the same date, Manfred Plc. entered into an agreement to acquire
a motor vehicle. The terms of the agreement were that the vehicle
would be leased for 5 years from the date of inception, subject to a
deposit of TZS 19,972 and 5 annual payments of TZS 6,500 in
advance, commencing on 1 August 2017. The fair value of the vehicle
and the present value of the lease payments were TZS 48,000 at
inception. The interest rate implicit in the lease is 8%.
Required:
a) Outline the key principles behind the accounting treatment for leases as
required by IFRS 16.
b) Show, with appropriate calculations, the accounting entries required to
record each transaction above for the year ended 31 July 2018. Present
the relevant extracts from the statement of profit or loss for the year
ended 31 July 2018, and the statement of financial position as at that
date.
QUESTION FIVE
Malenda enter into an agreement to lease an asset. The terms of lease
are as follows. Primary period is four years from January 2012, with
rental of TZS 2,000,000 per annum payable on 31, December each year.
Present value of lease payment is TZS 5,710,000. The interest rate
implicit of lease is 15%.
Required:
What figure will be shown in the financial statement for the year ended
31 December 2012?
QUESTION SIX
On 1 April 2015, company DX acquired plant and machinery with a fair
value of TZS 9,000,000 on a finance lease. The lease was for five years
with the annual lease payments of TZS 2,280,000 being paid in advance
on 1 April each year. The interest rate implicit in the lease was 13.44%.
The first payment was also made on 1 April 2015.’
Required:
a) Calculate the finance charge in respect of the lease that will be

shown in the company’s income statement for the year ended 31
March 2017.
b) Calculate the amount to be shown as a current liability and a non-
current liability in the company’s balance sheet at 31 March 2017.
QUESTION SEVEN (low valued items)

On April 2016, Kishimbe acquires the telephone for its sale force under a
two year lease agreement. The terms of the lease require an initial
payment of TZS 2,000,000, followed by two payments of TZS 8,000,000
each on 31 March 2017 and 31 March 2018.
Required:
Show the impact of the agreement on the Kishimbe Financial statements
for the year ended 31 December 2016.
QUESTION SEVEN (sell and lease back)
On January 2021, Bimora sells an item of machinery to Yoyo Company
for its fair value of TZS 3,000,000. The asset had a carrying amount of
TZS 1,200,000 prior to sale. This sale represents satisfaction of
performance obligation, in accordance with IFRS 15 Revenue from
contract with customers. Bimora enter into contract with Yoyo for the
right of use asset for the next five years. Annual payment of TZS 500,000
is due at the end of each year. The interest rate implicit in the lease is
10%.
The present value of the annual lease payment is TZS 1,900,000. The
remaining useful life of machine is much greater than lease term.
Required:
Explain how Bimora will account for the transaction on 1 January 2021.
QUESTION EIGHT
An entity (Seller-lessee) sells a building to another entity (Buyer-lessor) for cash

of TZS 2,000,000. Immediately before the transaction, the building is carried at
a cost of TZS 1,000,000. At the same time, Seller-lessee enters into a contract
with Buyer-lessor for the right to use the building for 18 years, with annual
payments of TZS 120,000 payable at the end of each year. The terms and
conditions of the transaction are such that the transfer of the building by
Seller-lessee satisfies the requirements for determining when a performance
obligation is satisfied in IFRS 15 Revenue from Contracts with Customers.
Accordingly, Seller-lessee and Buyer-lessor account for the transaction as a
sale and leaseback. Ignores any initial direct costs
The fair value of the building at the date of sale is TZS 1,800,000.
Required:
Show the impact of the agreement on the company year-end financial
statements.

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MZUMBE UNIVERSITY

Required: Identify if the contract is lease or contain lease agreement.

Required: Identify if the contract is lease or contain lease agreement.

Required: Calculate Initial carrying amount of

QUESTION FOUR (CPA Ireland)

(i) On 1 August 2017, Manfred Plc. entered into an agreement to lease a

a) Calculate the finance charge in respect of the lease that will be

QUESTION SEVEN (low valued items)

An entity (Seller-lessee) sells a building to another entity (Buyer-lessor) for cash

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