I want you to read and understand below transcript carefully and prepare learning notes. and answer my questions.

Introduction
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hello welcome back to miss finance my
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name is rebecca and on this channel i'll
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go for all things accounting finance
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excel and
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investment related so if you like this
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kind of stuff please do consider
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subscribing
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so today we're going to have a look at
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ifrs 16 examples now i'm not going to go
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through all the initial
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measurement and recognition of an asset
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review i can cover that in a different
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video but
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i thought it'd be quite useful just to
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see some real-life examples and go
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through those instead
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so let's crack on so with example one we
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have a piece of machinery that is being
Example 1
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hired by elise
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from a lesser through a contract with a
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supplier for less than one year
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how would we account for this now the
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leasi is the individual who is leasing
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the asset
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the lesser is the one that's loosening
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the acid to you
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now under ifrs 16 leases may alert not
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to recognize
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a right of use asset or a liability
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where they've got a lease term of 12
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months or less
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so in such cases the way that they would
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account for that is that they would put
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the lease payments into the profit and
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loss statement otherwise known as the
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income statement on a straight-line
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basis
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over the term of the lease so if the
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lease was for four years
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you would take the total payments and
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you would divide that by
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four and that would be what's going to
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profit and loss account now the
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exemption is required to be applied by
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class of underlying assets so if you've
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got
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machinery that's being leased and
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vehicles that are being leased they're
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two different types of underlying assets
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so
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you must apply that exemption to both
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classes now let's have a look at example
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two
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so we've got an engineering company and
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they have decided to upgrade their
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laptops used by employees
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each individual laptop cost 500 pound
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and they purchase
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all four on contract with a supplier so
Example 2
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they've gone through so they've gone
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through all of the workings and they've
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realized that this is a
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finance lease now should we recognize
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that as a finance lease though that's
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the question
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now there is a clause under ifrs 16 that
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leases are not actually required to
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recognize
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assets or liabilities for leases of a
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low value
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so they've given examples like tablets
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personal computers small items
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of office furniture and telephones so in
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this case they can have a clause within
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their financial statements under ifrs 16
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and within their policies for
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recognizing assets and leases
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to state that they will not be
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recognizing anything under a threshold
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of say
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500 pounds so in this case they're not
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going to recognize this as the finance
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lease and instead
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the costs associated would also go
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through the profit and loss account
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just like in example one so let's have a
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look at example three so we've got a
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company
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that has identified the finance lease
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through the right to use a finance
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vehicle
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under the contract with an external hire
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purchase company
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what would be the original entries into
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the financial statements
Example 3
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so we've got our finance leads and we
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need to have a look at what the original
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entries are
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so the first thing we're going to do is
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we're going to recognize an asset and
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we're also going to recognize a
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liability
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under lease obligation so we're going to
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debit right of usa and we're going to
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credit the liability and that's going to
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be
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at present value now each period what
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we're going to need to do
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for the asset we're going to have to
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post appreciation as a debit
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so a debit into the profit and loss
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account or the income statement and a
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credit against accumulated depreciation
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regarding that right of use asset now in
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terms of the interest
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on the lease what we're going to need to
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do is debit interest charged into the
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profit and loss account or income
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statement and then we're going to have
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to credit that lease liability
Example 4
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on the balance sheet so i hope this is
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making sense so far now example four
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a company has identified a finance lease
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for a new vehicle
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the vehicle will cost thirty thousand
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pounds each year
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the interest implicit in the lease is
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four percent and the lease is for four
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years
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so how would the lease liability be
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calculated so for the lease liability we
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need to work out what the present value
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of the lease is so here i've got a table
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that i've completed
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in excel and that's the formula that
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i've used above equals pv open brackets
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four percent
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four years minus thirty thousand pound
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and then
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zero zero in excel and that will get me
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to the one hundred and eight thousand
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eight hundred and ninety six pound
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eighty six and that's what i'm going to
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recognize as both an asset and a lease
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however if i want to split that out year
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by year the present value in year one is
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twenty eight thousand eight hundred and
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forty six
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twenty seven thousand seven hundred and
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thirty six twenty six thousand six
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hundred sixty nine and then twenty five
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thousand six hundred and forty four
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in year four so let's move on to number
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five
Example 5
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so here we've got a company that has
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identified the finance lease
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for an asset that they have so the
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vehicle will cost sixty thousand pounds
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each year
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the interest implicit in the lease is
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seven percent and the lease is for five
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years so again how would the lease be
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calculated
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so we're going to use the same formulas
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as before so
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if i put into excel equals pv seven
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percent for the lease
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five for the number of payments minus
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sixty thousand for the cash
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flow and then zero zero into excel then
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that's going to
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spit out two hundred and forty six
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thousand and eleven pound eighty five
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for the total liability that i'm going
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to recognize
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now in terms of the present value by
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year i've put a little table there
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that you can see we've got fifty six
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thousand seventy four
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fifty two thousand four hundred and six
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forty thousand nine hundred and seventy
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seven
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forty five thousand seven hundred and
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seventy three and four 42
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779 there which then gets me back to the
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246
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thousand and 11. so example 5 has been
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continued here so how do we account for
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depreciation
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and interest on this lease so firstly
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we can take the present value of that
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246 011
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pound 85 and i've just popped a table
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here at the bottom
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to show how would calculate interest and
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the lease liability and the liability
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carried forward because every year
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you're going to be making a payment
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to that third party for the least higher
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so in our case that's 60 thousand pounds
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but that's actually split between
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interest and the lease liability so if i
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was to take that 246 thousand and 11.85
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in year one and actually multiply that
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by seven percent
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i get interest of seventeen two two zero
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point eight three
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so that means that the least liability
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element of that
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has to be four to two thousand seven
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hundred and seventy nine pounds and
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seventeen
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so my liability carry forward is just
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going to continue to reduce
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every single year and you'll notice at
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the bottom of that table
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that where i've got that negative 300
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000 total
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against cash the total of my interest
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and lease liability added together at
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the end
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balances that zero so in order to
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account for the
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interest element here in the p l i'm
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going to have to debit the profit loss
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account to interest charged of seventeen
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thousand two hundred twenty pound eighty
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three
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and then i would also need to debit the
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balance sheet lease liability
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with force 42 779 pound and 17 pence and
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then i would credit the bank with the
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sixty thousand pounds payment
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now in terms of the depreciation here we
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will have taken the present value of the
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asset which was two hundred and forty
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six thousand eleven
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eighty and that's what we've got sat as
Example 5 Continued
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the cost of
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that asset so the least terms over five
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years so what we can do
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is we can take that 246 thousand and
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11.85 and divide that by
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five giving us 49 202.30
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and that's what we're going to
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depreciate every year so i'm going to
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debit
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the profit and loss account or the
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income statement to depreciation
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and that's going to be my 49202.37
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and then i'm going to post a credit to
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the right of use asset accumulated
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depreciation account of the 49202.37 so
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every year the asset value
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is being reduced by the four to nine
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thousand so i hope you found this video
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useful
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do consider subscribing as always and i
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shall see you on the next video