CIMA Exam CIMAPRA19-F02-1 Topic 1 Question 81 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam

Question #: 81
Topic #: 1

EF acquired a copy machine under a three-year operating lease. EF will pay nothing in year one and then will pay $6,000 in years two and three. The estimated economic useful life of the machine is six years.

Which THREE of the following statements are true in respect of how EF will account for its use of the machine and the associated operating lease payments?

AAn asset of $12,000 will be included in EF's property, plant and equipment at the start of the lease.

BEF will record no expense in year one in respect of the operating lease charges for this machine.

CEF will record a credit to bank of $6,000 in year two.

DEF will include an accrual of $4,000 at the end of year one in respect of the lease payments.

EEF will charge $4,000 to profit or loss in each of the three years in respect of this operating lease.

FEF will include an accrual of $6,000 at the end of year one in respect of the lease payments.

Show Suggested Answer

Suggested Answer: A, B, C

by Micaela at Feb 07, 2024, 11:15 PM

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Jennie

2 months ago

An accrual of $4,000 at the end of year one? That's interesting, but shouldn't the full $6,000 payment be recorded as an expense in years two and three?

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Justine

14 days ago

EF will not record any expense in year one, but will recognize the expense over the lease term.

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Ronald

17 days ago

An accrual of $4,000 at the end of year one is needed to account for the total lease payments over the three-year period.

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Stephane

1 months ago

EF will charge $4,000 to profit or loss in each of the three years for this operating lease.

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Katheryn

1 months ago

EF will include an accrual of $6,000 at the end of year one for the lease payments.

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Kathrine

1 months ago

Yes, the full $6,000 payment will be recorded as an expense in years two and three.

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Shoshana

1 months ago

Yes, EF will record no expense in year one for the operating lease charges.

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Nicolette

2 months ago

A credit to the bank in year two? I guess that's where the $6,000 payment will go, but I wonder how that affects the overall accounting treatment.

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Veronica

2 months ago

Haha, recording no expense in year one? That's like getting a free ride for the first year. I wonder if the IRS would approve of that.

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Craig

19 days ago

Ngoc: True, they're just following the guidelines for operating leases.

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Lakeesha

1 months ago

User 3: I doubt the IRS would have any issues with that, it's all part of the accounting rules.

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Ngoc

2 months ago

User 2: EF lucked out with that one, no expenses to worry about.

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Chandra

2 months ago

User 1: Yeah, it's like a freebie for EF in year one.

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Dell

2 months ago

Hmm, I'm not sure about including an asset of $12,000 in property, plant, and equipment. Isn't the whole point of an operating lease that we don't record the asset on our books?

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