IFRS 16 · Case studies (Step 3 of 5)
Case study
Studio Arvel (a fictitious company), an architecture firm, closes its accounts on 31 December and applies IFRS 16. On 1 January 20X1, it leases an office floor in a building owned by Foncière Talmont (a fictitious lessor). According to the case data, the contract is a lease under IFRS 16, Studio Arvel is the lessee and no exemption is applied. You are preparing the accounting at the commencement date and the 20X1 year-end.
Your assignment
Using the documents provided, calculate the lease liability and the cost of the right-of-use asset at 1 January 20X1, record the initial entry, then prepare the 20X1 entries (interest, lease payment, depreciation) and their impact on the financial statements. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Fundamental level: the method, help and references are shown.
Method
File checklist
5 documents: open each one to read it.
Document 1Contract
Extract from the lease signed with Foncière Talmont: the floor is made available on 1 January 20X1 (commencement date); non-cancellable period of 5 years, with no extension, early termination or purchase option; fixed lease payment of 60,000 a year, payable in arrears on 31 December of each year, with no indexation; ownership of the building remains with the lessor; no obligation to restore the premises.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Commencement date | January 1 20X1 | |
| Non-cancellable period of the lease | 5 years | |
| Annual lease payment | €60,000.00 | |
| Payment dates (31 December, in arrears) | IN_ARREARS_31_DECEMBER | |
| Lessee's incremental borrowing rate | 4% | |
| Agency commission | €4,500.00 | |
| Remaining useful life of the building | 40 years | |
| Annual insurance premium | €1,800.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Extract from the lease
Treasury memo on the rate
Estate agency invoice
Technical sheet of the building
Furniture insurance contract
9 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
What must Studio Arvel recognise at 1 January 20X1?
Set out the facts, the question raised, then your analysis.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 2Calculation
Calculate the lease liability at the commencement date.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Calculate the lease liability at the commencement date.
Result: Lease liability at 1 January 20X1
Task 3Calculation
Calculate the cost of the right-of-use asset.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Calculate the cost of the right-of-use asset.
Task 4Journal entries
Which entry do you record at 1 January 20X1?
Identify the accounts affected and the direction of each movement; check the balance.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Task 5Calculation
Calculate the 20X1 interest and the lease liability at 31 December 20X1.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Calculate the 20X1 interest and the lease liability at 31 December 20X1.
Result: Lease liability at 31 December 20X1
Task 6Calculation
Determine the depreciation period, the 20X1 depreciation charge and the carrying amount of the right-of-use asset at 31 December 20X1.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Determine the depreciation period, the 20X1 depreciation charge and the carrying amount of the right-of-use asset at 31 December 20X1.
Result: Carrying amount of the right-of-use asset at 31 December 20X1
Task 7Journal entries
Which entries do you record in 20X1?
Identify the accounts affected and the direction of each movement; check the balance.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 8Effects on the financial statements
What is the impact of all the entries on the 20X1 financial statements?
For each financial statement, state the line affected, the direction and the amount.
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 9Conclusion
Write the conclusion.
Write a conclusion that cites the facts and the treatment chosen.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 13).
Document this file
These working papers use the data and results of this case.
Normative references