Financial reporting Question

An asset which could be purchased outright for £383,720 is instead leased by Lessee Ltd for three years at the end of which the asset will have no residual value. The lease provides for half-yearly payments in advance of £72,000, the first payment being made on 1 January 2018. The asset is to be depreciated using the straight line method.


(a) Show how the asset will be accounted for in the financial statements for the year ended 2018 under IAS 17 if:

(i) Lessee Ltd is responsible for all maintenance and insurance costs;

(ii) Lessee Ltd is not responsible for the maintenance and insurance costs.

(14 marks)

(b) IFRS 16 Leases has changed how leases will be recognised in financial statements. Outline the key changes to lease accounting contained in IFRS 16 and discuss why these changes were considered to be needed.

Your answer to this part of the question should not be more than 150 words.

(6 marks)

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