IFRS 16 requires the finance charge to be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the outstanding lease obligation. This rate is referred as the implicit rate of interest which is equal to Question 5Select one: a. The cost of capital b. The Net present Value (NPV) c. The accounting rate of return d. The base interest rate e. The internal rate of return
Question
IFRS 16 requires the finance charge to be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the outstanding lease obligation. This rate is referred as the implicit rate of interest which is equal to Question 5Select one:
a. The cost of capital
b. The Net present Value (NPV)
c. The accounting rate of return
d. The base interest rate
e. The internal rate of return
Solution
The correct answer is e. The internal rate of return.
The implicit rate of interest in a lease agreement under IFRS 16 is the rate that causes the present value of (a) the lease payments and (b) the unguaranteed residual value to equal the sum of (i) the fair value of the underlying asset and (ii) any initial direct costs of the lessor. This is essentially the internal rate of return (IRR) on the lease.
Similar Questions
Internal Rate of Return (IRR) is defined as the discount rate at which Net Present Value (NPV) of the cash flows is equal to zero.Group of answer choicesTrueFalse
Alpha enters into a lease with Omega of an aircraft which had a fair value of $240,000 at the inception of the lease. The lease terms require Alpha to pay 10 annual rentals of $36,000 in arrears. Alpha is wholly responsible for the maintenance of the aircraft which has a useful life of approximately 15 years. The present value of the 10 annual rentals of $36,000 discounted at the interest rate implicit in the lease is $220,000.Applying the requirements of IFRS 16 Leases to this agreement what is the increase in Alpha’s non-current assets? A. $0 B. $220,000 C. $240,000 D. $360,000
As per IFRS16- Lease under which of the following TWO circumstances “simplified accounting” method is used:- A. To short-term leases (i.e. with terms of 12 months or less and no purchase option) and To leases for which the underlying asset, when new, is “low value”. B. To long-term leases (i.e. with terms of more than 12 months) and to leases for which the underlying asset, when new, is “high value”. C. To short-term leases (i.e. with terms of 12 months or less and no purchase option) and to leases for which the underlying asset, when old, is “low value”. D. To short-term leases (i.e. with terms of 12 months or less and no purchase option) and to leases for which the underlying asset, when new, is “high value”.
The new accounting standard for leases, AASB 16/IFRS 16, has introduced:
IFRS 15: Revenue from contract with customers, covers all of the following except ……………………a.None of the aboveb.Lease contractc.Contract for the performance of serviced.Contract for goods
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