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CIMAPRA19-F02-1 Exam - Topic 1 Question 42 Discussion

LM acquired an asset under a 5-year non-cancellable operating lease agreement on 1 January 20X8. Under the terms of the agreement, LM paid nothing for the first year and then made fourpayments of $50,000 in each subsequent year. LM adopted the provisions of IAS 17 Leases when accounting for this agreement.Which of the following is correct in respect of this operating lease in LM's financial statements for the year to 31December 20X8?
A) An accrual of $40,000 was recognised.
B) An accrual of $50,000 was recognised.
C) A prepayment of $10,000 was recognised.
D) An expense of $50,000 was recognised.

CIMAPRA19-F02-1 Exam - Topic 1 Question 42 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam
Question #: 42
Topic #: 1
[All CIMAPRA19-F02-1 Questions]

LM acquired an asset under a 5-year non-cancellable operating lease agreement on 1 January 20X8. Under the terms of the agreement, LM paid nothing for the first year and then made fourpayments of $50,000 in each subsequent year. LM adopted the provisions of IAS 17 Leases when accounting for this agreement.

Which of the following is correct in respect of this operating lease in LM's financial statements for the year to 31December 20X8?

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Suggested Answer: A

by Lashandra at May 06, 2022, 07:31 PM

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Margart
10 months ago
Definitely not option C, that doesn't add up at all!
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Hester
10 months ago
I thought they would recognize some kind of prepayment, but I guess not?
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Amie
11 months ago
Wait, how can there be an accrual if they didn't pay anything in year 1?
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Vi
11 months ago
I agree, option D makes the most sense here.
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Lyndia
11 months ago
The lease payments start in year 2, so only $50k expense for 20X8.
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Ivory
11 months ago
I'm a bit unsure about this one. I'll need to think through the key details and see if I can logically determine the correct answer.
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Donette
11 months ago
I'm not sure about this one. I'll need to double-check the documentation to make sure I'm not missing anything important.
upvoted 0 times
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Goldie
11 months ago
Option C seems like the most logical choice here. The auditor is responsible for the fair presentation of the financial statements, not management.
upvoted 0 times
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