Dolphin Company leased an office under a six-year contract, which has been accounted for as an operating lease. Faced with the downturn in the economy, the viable company decided to sub-lease the office. However, they have had no luck with this effort and the landlord will not allow the lease to be cancelled. The payments are $15,000 per year and there are five years left on the lease. The company\'s most recent interest rate for financing from a bank is 9%. The risk-free rate on government bonds is 5%. What is the provision for the lease under IFRS?
Solution
Solution :
For operating leases, lease payments (excluding costs for services such as insurance and maintenance) are
recognised as an expense on a straight-line basis unless another systematic basis is representative of the time
pattern of the user’s benefit, even if the payments are not on that basis.
Lessees shall, in addition to meeting the requirements of IFRS , make the following disclosures for operating leases:
(a) the total of future minimum lease payments under non-cancellable operating leases for each of the following periods:
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years.
b) The total of future minimum sublease payments expected to be received under non-cancellable
subleases at the end of the reporting period.
c) lease and sublease payments recognised as an expense in the period, with separate amounts
for minimum lease payments, contingent rents, and sublease payments
.
Dolphin Company leased an office under a six-year contract- which has.docx
1. Dolphin Company leased an office under a six-year contract, which has been accounted for as an
operating lease. Faced with the downturn in the economy, the viable company decided to sub-
lease the office. However, they have had no luck with this effort and the landlord will not allow
the lease to be cancelled. The payments are $15,000 per year and there are five years left on the
lease. The company's most recent interest rate for financing from a bank is 9%. The risk-free
rate on government bonds is 5%. What is the provision for the lease under IFRS?
Solution
Solution :
For operating leases, lease payments (excluding costs for services such as insurance and
maintenance) are
recognised as an expense on a straight-line basis unless another systematic basis is representative
of the time
pattern of the user’s benefit, even if the payments are not on that basis.
Lessees shall, in addition to meeting the requirements of IFRS , make the following disclosures
for operating leases:
(a) the total of future minimum lease payments under non-cancellable operating leases for each
of the following periods:
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years.
b) The total of future minimum sublease payments expected to be received under non-
cancellable
subleases at the end of the reporting period.
c) lease and sublease payments recognised as an expense in the period, with separate amounts
for minimum lease payments, contingent rents, and sublease payments
