WEEKLY EXERCISE

April 2024

Skill Development and Portfolio Building Activity

Exercises on Accounting For Leases

Week Duration: 14/04/2024 to 21/04/2024

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Application of the following skills learnt in class today:

⧫ Understanding the principles and guidelines outlined in accounting standards;

⧫ Understanding the ability to calculate and record leases- related financial entries ;

⧫ Analysing and interpreting financial statements to assess the financial impact of leases on a
company’s overall financial performance and position ;

Reference Material:

● Material shared in class

Activity 1: (10 marks)

Query 1: The Genesis Group leases an asset from Earth Co for 8 years. The life of the asset is expected
to be 10 years. If the lease does NOT contain a bargain purchase option or a transfer of title, which of
the following is correct? (2 marks)

A. The leased asset would be accounted for by the Genesis Group as an operating lease

B. The leased asset would be depreciated using the same method for book purposes as for
tax purposes

C. The leased asset would be depreciated by the Genesis Group over 8 years

D. The leased asset would be depreciated by the Genesis Group over 10 years

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(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

Query 2: In Year 3, Tanstal Corp sold an asset for $900,000 to bargo Corp and simultaneously
leased it back for 5 years. The assets remaining life was 53 years, and the carrying value on the
date of the sale was $640,000. The annual lease payments were $180,000 per year. How much
gain should be recognized by Tanstal in Year 3? (3 marks)

Possible Answers:

A. $180,000

B. $36,000

C. $52,000

D. $260,000

(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

Query 3: ABC Corporation enters into an operating lease for a specialised piece of machinery
with XYZ Leasing Company. Which of the following statements regarding the accounting
treatment of this operating lease is accurate? (2 marks )

A. The leased asset is recognized on the balance sheet as an owned asset.

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B. Lease payments are recognized as a liability on the income statement.

C. The leased asset is amortised over its useful life.

D. ABC Corporation has the option to purchase the leased asset at the end of the lease term at
its fair value.

Select the Appropriate Option:

A. A and B B. B and D

C. C and D D. A and C

(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

Query 4 : XYZ Corporation enters into a lease agreement for a piece of machinery with ABC

Leasing Company. The lease term is three years, and the machinery's fair value is $150,000. The
lease agreement includes the following terms: (3 marks)

● Annual lease payments: $60,000, payable at the beginning of each year.

● Incremental borrowing rate for XYZ Corporation: 8%

● Residual value of the machinery at the end of the lease term: $20,000

XYZ Corporation classifies the lease as a finance lease.

If PV is $155,769.23 , what amount should be initially recognised as the lease Liability . Also,
prepare journal entry at commencement of lease and for XYZ Corporation).

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(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

Activity 2: (10 marks)

Factual Scenario

PART A : EXXON Corporation is a rapidly growing technology company that specializes in

The annual lease payments are $15,000, and the lease term is four years. The fair value of the leased
equipment is $50,000.

Q1. Define the type of lease used by the EXXON corporation?Also mention other lease options that are
available to the corporation. (3 marks)

(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

Query 2: Calculate the total lease payments over the four-year term? (1 mark)

(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

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Query 3 : Name one advantage for EXXON Corporation in choosing a lease over purchasing the space
outright? (1 mark)

(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

PART B: EXELA LTD. is considering entering into a lease agreement for a piece of machinery with
annual lease payments of $20,000 for five years. The company's cost of capital is 6%.

Query 1: Define what present value is in the context of lease finance. (2 marks)

(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

Query 2: Calculate the present value of the lease payments for EXELA LTD (3 marks)

(Hint: Please refer to your learning in class and the materials shared in class to answer this
query)

Network Expansion Activity:

Since you have developed strong skills in Accounting For Leases, you should also get a fair
chance to showcase them and be recognized for what you can do. One of the ways of getting
there is by making use of your LinkedIn profile.

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under applicable law.
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Here is what you can do:

Please list three (3) elements about today’s class that you did not know previously and three (3)
important takeaways from today’s lesson and how you will apply them in your professional
journey in the future.

Share this as a LinkedIn post and tag Chinaza Ukadike, Jyotica Sharma and Chidimma
Nwosu-Okoli for better reach.

[You are encouraged to do so to build your profile. If you choose to post, kindly provide the
link for your LinkedIn Post in your assignment. The objective of posting on LinkedIn and
tagging the individuals above is to demonstrate your knowledge and expose you to the right
recruiters.

Please note: Tagging the persons mentioned above is optional, and the learner may do so at
her/his/their discretion.]

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NOTE:

Please reach out to your course anchor for your course-related queries at

● Chinaza Maryrita Ukadike - You can also book a calendly session with her through the
link on your Assignment Portal. (https://calendly.com/chinaza05/courseanchor)

● Jyotica Sharma - You can also book a calendly session with her through the link on your
Assignment Portal. (https://calendly.com/jyoticasharma/30min)

● For Support/ Technical/ Evaluation concerns, write to [email protected]

Here are the escalation points if you are dissatisfied with our services, especially content and
classes.

1. Chinaza Maryrita Ukadike: Course Anchor ([email protected])

2. Jyotica Sharma : ([email protected])

3. Priyanka Sinnarkar : Deputy Director (Upskilling Courses)

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