TRUE OR FALSE
An advantage of leasing is that is protects against potential obsolete equipment.
IFRS 16 uses a contract basis to evaluate lease contracts which results in almost all lease contracts to be capitalized as finance leases.
In general, with a capital lease, the leased item is classified as an asset with a corresponding liability.
Under ASPE, the lessee should classify a lease as a capital lease if the lessor will recover 85% or more of the leased asset's fair value as well as realizing a return on the investment.
For interest rates, ASPE indicates the lower of either the lessor's implicit rate (if known) or the lessee's incremental borrowing rate should be used.
IFRS has 2 exceptions for leases being capitalized:
1. low dollar value
2. short-term leases
7. To set up the lease arrangement, under IFRS, part of the entry will be (for the lessee):
Debit: Right-of-Use Asset
Credit: Lease Liability