Question
Bramley Advisory leases 15 laptops on 1 March 2025 for two years, paying $9,600 for the year in cash on that date.
- Each laptop is worth around $1,200 when new.
- The company elects the low-value asset exemption available under IFRS 16.
Required: Prepare the journal entry for the payment on 1 March 2025.
The exemption is judged on the value of the asset when new — in absolute terms — not on how material the lease is to the company. Where it applies, no right-of-use asset or lease liability is recognised.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
How to approach Leases
IFRS 16 — Leases
A lessee recognises a right-of-use asset and a lease liability at commencement, the liability being the present value of the remaining lease payments. The asset then depreciates while the liability unwinds at the discount rate, which is why the two balances diverge over the term.
Common mistakes
- Splitting a payment between interest and principal using the payment date rather than the opening liability and the rate.
- Depreciating the right-of-use asset over the asset's useful life when the term is shorter and ownership does not transfer.
- Treating the whole lease payment as an expense, which is the superseded operating-lease treatment.
IFRS vs US GAAP: US GAAP keeps a finance/operating distinction for lessees with a single straight-line expense for operating leases; IFRS 16 uses one model.
Further readingIFRS 16: leases, with journal entries