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CIMAPRA19-F02-1 Exam - Topic 5 Question 105 Discussion

UV entered into a five year non-cancellable operating lease for an asset two years ago. Lease payments are settled annually in arrears.At the year end, UV no longer requires this leased asset as they have decided to discontinue the product line that itwas used for.At this date UV had made two out of the five lease payments.Which of the following statements about the unavoidable lease payments is true in accordance with IAS 37 Provisions, Contingent Liabilities and Assets?
A) A provision should be recognised for the unavoidable lease payments with a corresponding charge to profit or loss.
B) A provision should be recognised for the unavoidable lease payments with a corresponding charge to other comprehensive income.
C) The amount of the unavoidable lease payments should be disclosed in the financial statements with no corresponding accounting entry.
D) The amount of the unavoidable lease payments should be ignored in the financial statements.

CIMAPRA19-F02-1 Exam - Topic 5 Question 105 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam
Question #: 105
Topic #: 5
[All CIMAPRA19-F02-1 Questions]

UV entered into a five year non-cancellable operating lease for an asset two years ago. Lease payments are settled annually in arrears.

At the year end, UV no longer requires this leased asset as they have decided to discontinue the product line that itwas used for.

At this date UV had made two out of the five lease payments.

Which of the following statements about the unavoidable lease payments is true in accordance with IAS 37 Provisions, Contingent Liabilities and Assets?

Show Suggested Answer Hide Answer
Suggested Answer: A

by Ezekiel at Jan 13, 2025, 07:49 AM

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Emilio
8 months ago
Option C sounds reasonable too, but I lean towards A.
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Eleni
8 months ago
I’m not sure about that, shouldn’t they disclose it at least?
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Reena
8 months ago
Wait, can they just ignore the payments? That seems off.
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Samuel
8 months ago
I agree, option A makes the most sense here.
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Winifred
9 months ago
A provision for unavoidable lease payments is definitely needed.
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Royal
9 months ago
I think the key here is that since the lease is non-cancellable, we might need to recognize a provision. I lean towards option A, but I’m not entirely certain.
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Corrie
9 months ago
I’m a bit confused about whether the lease payments should be disclosed or if a provision is necessary. I feel like we covered this but I can't recall the specifics.
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Christene
9 months ago
This question feels similar to one we practiced where we had to determine if a liability should be recognized. I think option A might be correct.
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Brice
9 months ago
I remember we discussed how IAS 37 deals with provisions, but I'm not sure if we should recognize a provision for lease payments that are unavoidable.
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Shawn
9 months ago
This is a tricky one. I'll need to weigh the options carefully and make sure I select the answer that is fully compliant with the IAS 37 requirements.
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Norah
9 months ago
Okay, I think I've got a handle on this. The key is determining whether a provision needs to be recognized for the unavoidable lease payments, and if so, where the corresponding charge should be recorded.
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Santos
9 months ago
Hmm, I'm a bit unsure about this one. I'll need to review the IAS 37 standard closely to make sure I understand the right accounting treatment for the remaining lease payments.
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Lon
10 months ago
This seems like a straightforward application of IAS 37. I'll need to carefully consider the requirements around recognizing a provision for the unavoidable lease payments.
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Vanda
1 year ago
Wait, we're supposed to actually read the accounting standards? I thought this was a multiple-choice exam, not a research project!
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Katheryn
1 year ago
I'm pretty sure the correct answer is C. Disclose the amount in the financial statements, but don't bother with any accounting entries. That way, you can just show the liability and move on.
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Annamaria
1 year ago
I agree with you, C seems to be the correct answer. Just disclose the amount and no need for accounting entries.
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Nathalie
1 year ago
I disagree, I believe the answer is C. We should disclose the amount in the financial statements without any accounting entry.
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Gretchen
1 year ago
I think the correct answer is A. We should recognize a provision for the unavoidable lease payments with a charge to profit or loss.
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Ettie
1 year ago
Haha, I bet the answer is D - just ignore the lease payments and hope the examiner doesn't notice. That's the easiest solution, right?
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Kallie
1 year ago
User 3: Yeah, ignoring the lease payments would not be a good idea. We need to be transparent in our financial statements.
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Gerald
1 year ago
User 2: I agree with Gerald. We should follow the accounting standards and recognize a provision for the unavoidable lease payments.
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Susy
1 year ago
User 1: No way, that's not the right approach. We can't just ignore the lease payments.
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Shanda
1 year ago
I'm not sure about this one. Could it be B? Recognizing the provision in other comprehensive income might be more appropriate since it's not directly related to the current operations.
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Shannon
1 year ago
I see your point, but I still believe that recognizing the provision in profit or loss is the most appropriate treatment.
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Tresa
1 year ago
I'm not sure about that. I still think B could be a valid option considering the nature of the lease payments.
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Levi
1 year ago
I agree with you. Option A makes more sense because it directly impacts the profit or loss.
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Quentin
1 year ago
I think A is the correct option. Recognizing the provision in profit or loss seems more appropriate in this case.
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Lashawnda
1 year ago
I think the correct answer is A. A provision should be recognised for the unavoidable lease payments, as UV is legally bound to make the remaining lease payments even though they no longer require the asset. Charging this to profit or loss seems appropriate.
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Farrah
1 year ago
Yes, UV is legally obligated to make the remaining lease payments, so it makes sense to recognize it as a provision in the financial statements.
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Kerry
1 year ago
I agree with you, option A is the correct answer. UV should recognize a provision for the unavoidable lease payments.
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Barabara
1 year ago
I'm not sure about option B. Recognizing the provision in other comprehensive income doesn't seem appropriate in this situation.
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Jessenia
1 year ago
I agree with Tammara. It makes sense to recognize the provision for the lease payments that UV is obligated to make.
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Tammara
1 year ago
I think option A is correct. A provision should be recognized for the unavoidable lease payments with a corresponding charge to profit or loss.
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