Question

Effective December 15th, 2018, the operating leases will be recorded: A) as an asset and liability on the balance sheet of the lessee with a value equal to the estimated residual value of the leased asset. B) in the footnotes rather than on the balance sheet of the lessee. C) on the balance sheet of the lessee with value equal to the present value of future lease payments. D) only on the balance sheet and income statement of the lessor. E) only on the income statement of the lessee as each lease payment is expensed.

Answer 1

Answer: C) on the balance sheet of the lessee with value equal to the present value of future lease payments.

Explanation:

According to IFRS 16 and US GAAP ASC 842 which commenced Jan 1, 2019 and Dec 15, 2018 respectively, Lease payments are to be recognized on the balance sheet of the Lessee at the present value of the future payments on the lease.

The discount rate to be used will be implicitly stated in the lease agreement if both parties were able to determine it.