Accounting And Disclosure Requirements Of Leases

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We know businesses can acquire assets differently, they can buy it, or if they do not have enough fund to purchase the asset, they can lease it. Lease arrangements give the lessee access to the assets for long enough time and in return they need to make periodic payments to the lessor. The main advantage of leasing is to acquire the necessary equipment or assets, use that assets to generate revenue but without tying up a big amount of cash upfront. International Accounting Standard Board (IASB) introduced new guidelines for accounting and disclosure requirements of leases. IFRS 16 Leases will replace IAS 17 Leases, and related Interpretations, and will be effective from 1 January 2019. We can distinguish leases either financial or operational. In existing lease accounting practices, we treat financial leases similar to purchase with cash or on account. On the other hand operational leases do not recognised as an asset in the books of the business but we do deduct lease payments as an expense and it showed up in the income statement. Over the time, the use of operating income increased so much that the academician, regulators and practitioners raised concerns to potential opportunistic use of it by businesses (Altamuro, Johnston, Pandit and Zhang, 2014). In general companies who use operating lease ends up with improved return on assets and debt to equity ratio and therefore better solidity comparing to the companies who do not use operating leases, instead they use
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