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    Question

    The insurer leases 15 branch premises (3–5 years) with

    renewal options it is reasonably certain to exercise. Rent has fixed and variable (sales-linked) components. How are lease liabilities initially measured?
    A Present value of fixed payments only for non-cancellable period Correct Answer Incorrect Answer
    B Present value of fixed payments including periods covered by reasonably certain options Correct Answer Incorrect Answer
    C Present value of fixed + expected variable payments based on forecast sales Correct Answer Incorrect Answer
    D Undiscounted sum of fixed payments for entire legal term Correct Answer Incorrect Answer
    E Present value of fixed payments less initial direct costs Correct Answer Incorrect Answer

    Solution

    Lease term includes extension periods reasonably certain to be exercised; variable payments based on sales are excluded from liability.

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