ACCA Applied Skills · Financial Reporting · Leasing
On 1 January 20X5, Lyra Co entered into a 9-month lease of a delivery van with a non-cancellable term of 9 months and no purchase option. Monthly rentals are $1,000, payable in arrears. Lyra Co also entered into a 4-year lease of a photocopier (new value $3,500) and a 4-year lease of a forklift truck (new value $60,000). Lyra Co elects to use all available recognition exemptions under IFRS 16 Leases. Which of the following correctly describes the treatment in the year ended 31 December 20X5?
Only the forklift is capitalised. The nine-month van lease is short-term and the photocopier is a low-value asset when new, so under the elected exemptions their payments are expensed on a straight-line basis rather than recognised as right-of-use assets and liabilities.
- ARecognise right-of-use assets and lease liabilities for the van and the forklift only; expense the photocopier rentals
- BRecognise right-of-use assets and lease liabilities for the forklift only; expense the van and photocopier rentals on a straight-line basisCorrect
- CRecognise right-of-use assets and lease liabilities for all three leases because the exemptions apply only to leases of land
- DRecognise right-of-use assets and lease liabilities for the photocopier and forklift only; capitalise the van rentals as prepayments
Explanation
The van lease has a term of 12 months or less with no purchase option, so it qualifies as short-term. The photocopier is a low-value asset when new (about $5,000 or less), so it also qualifies. Only the forklift is capitalised. Option A wrongly capitalises the van, which is short-term; the exemptions are not limited to land.
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