Discussion of Ias 17 Leases Essay

Another way to treat this provision would be not to recognize at the inception of the lease but directly expense the costs when the required maintenance is performed. Regarding the accrual method in Alternative 1, ASC 360-15-25-5 prescribes “the use of accrue-in-advance (accrual) method of accounting for planned maintenance activities is prohibited in annual and interim financial reporting periods.” This is consistent to FASB’s opinion

The third and final question from the case is how would the lease classification change under U.S. GAAP. The FASB codification that deals with leases is ASC 840. U.S. GAAP classifies leases as operating leases or capital leases and it has a section for sale-leaseback transactions as well. Under U.S. GAAP, the lease in this case would be classified as a capital lease. This is because ASC 840-10-25-29 says, “If at its inception a lease meets any of the four lease classification criteria in paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease.” This lease meets two of those criterions. The lease term is equal to 75% of the economic life of the equipment (3 year lease term / 4 year economic life of equipment = .75 or 75%) and the present value of the minimum lease payments “equals or exceeds 90 percent of the excess of the fair value of the lease property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor” (ASC 840-10-25-1d). The present value of the minimum lease payments does in fact equal or exceed 90 percent of the fair value of the equipment ($248,690 / $265,000 = .94 or 94%). Under ASC 840-10-25-31, the lessee should use the implicit rate to calculate the present value of the lease payments because the lessee already

After adjusting lease expense, it is important to reformulate Income Statement and Balance Sheet to reflect the effect of the adjustments to MYX’s financial statements. To transfer operating lease to financial lease, the remove of lease expense will rise NOPBT by dropping the operating expense. As the nature of asset will be consumed during its economic life, amortisation on lease asset will incur which will plus its operating expense and discount NOPBT.

A. Firms with lower effective tax rates were found to have a higher proportion of leased debt to total assets than did firms with higher effective tax rates. Some lease agreements are in-substance long-term installment purchases of assets that have been structured to gain tax or other benefits to the parties. Since leases may take different forms, it is necessary to examine the underlying nature of the original transaction to determine the appropriate method of accounting for these agreements. That is, they should be reported in a manner that describes the intent of the lessor and lessee rather than the form of the agreement.

Dhaliwal, Dan, 2011. The Impact of Operating Leases on Firm Financial and Operating Risk.. Journal of Accounting, Auditing & Finance., [Online]. Volume 26 Issue 2, 151-197.. Available at: http://web.ebscohost.com.simsrad.net.ocs.mq.edu.au/ehost/detail?vid=3&sid=9317bb11-bcea-4e15-99f8-3930c890a726%40sessionmgr111&hid=103&bdata=JnNpdGU9ZWhvc3QtbGl

At the lease commencement, finance leases are capitalised at the fair value of the leased property, otherwise the present value of the minimum lease payments if lower (MHI, 2014). Other short term and long term payables include the relevant rental obligations and net of finance charges (MHI, 2014). Every lease payment is apportioned between the liability and finance charges (MHI, 2014). The finance cost is indicated in the comprehensive income statement for the lease period as well as to generate a constant periodic rate of interest on the remaining balance of the liability for each period (MHI, 2014). During the lease term, the depreciation is considered for the useful life of the asset such as the property, plant and equipment assigned under finance leases (MHI, 2014). The portion of the risks and rewards of ownership are persevered by the lessor are categorized as operating leases for leases (MHI, 2014). For the period of the lease, all payments made under operating leases less any incentives from lessor are indicated in the comprehensive income statement on a straight-line basis (MHI,

While working on a consulting engagement, a supervisor in the team has given an assignment. The client is a regional trucking company. A new customer has approached the client with an opportunity that would require 120 trailers—20 more than the trucking company currently owns. The client is uncertain how long the relationship with the customer may last, but the deal has the potential for significant growth. The supervisor has asked a research to be conducted on leases and lease structure issues on the Financial Accounting Standards Board (FASB) website, in particular the current practice and thought related to direct financing, sales type, and operating leases. This paper is a memo addressed to the supervisor that summarizes

David Jones does not included leases as part of their intangible assets but Myer does. This shows the different ways of recording accounting record between its competitors, and managers have an incentive to determine on the choice of recording items. This reflects business operation reflecting in its underlying business reality. Therefore, manager has higher chance to manipulate the accounting

As stated earlier, the IASB arose from specific needs of the accounting industry and the public. As international trade has increased, the need for transnational accounting information has increased as well. This sparked the demand for development of international accounting standards to make financial data between countries more comparable. In 1973, the International Accounting Standards Committee (IASC) was formed to develop these international standards. The standards issued by the IASC, prior to 2001, were called International Accounting Standards (IASs). In 2001, the IASC made the International Accounting Standards Board (IASB) the official international standard-setting body. The standards issued by the IASB are called International Financial Reporting Standards (IFRSs) (Schroeder, Clark, & Cathey, 2011, p. 82-87).

Why did the FASB embark on a project to change the reporting standard for leases? Under the current financial reporting standards for leases, an entity has to determine the classification of leases to account for by applying bright-line rules. This creates a potential opportunity for management to structure leases in order to achieve a specific desired accounting results (FASB). In addition, the current accounting model does not require operating leases to be recognized on the balance sheet. As a result, investors may underestimate the assets and liabilities that arise from leases and, thus, cause an uninformed decision of investment. According to a 2014 study on public company filings, nearly a trillion U.S. dollars were reported in

The objective of AASB 116 is to stipulate the accounting treatment for property, plant and equipment, make user can understand information about an entity’s investment in its property, plant and equipment, and the changes in entity’s investment. The main issue for property, plant and equipment in accounting are the recognition of relationship between assets, the determination of their carrying amounts, the depreciation charges and impairment losses. AASB 116 required the entity disclose it’s information of gross carrying amount, depreciation method, depreciation rate, useful lives of PPE, accumulated depreciation and reconciliation of carrying amount at beginning of the reporting period and at end of the reporting period.

The new accounting standard IFRS 16 on leases is different in IAS 17 in many aspects. The adaption of this new IFRS will be applicable from 1st of Jan 2019. The thoroughly discussed standard has made attempt to bring the single model of accounting for Lessee the will discourage the off balance sheet financing and the on-balancing sheet reporting will be enhanced. However, on the Lessor end the accounting model has

Global accounting standard setter joined hands to work in a coordinated manner to achieve the goal of creation of single set of accounting standards. Thus, IASB and FASB in response to the issues arisen due to the financial crisis started development of new set of standards. They decided to replace IAS 39 by and built and sub divided the project into three phases:

According to IAS 17.20, at the beginning of the lease term, lessees shall recognise finance leases as assets and liabilities in their statements of financial position at a lower or equal amount to the fair value of the leased property and the present value of the minimum lease payments, determined at the start of the lease. The discount rate used in calculation of the present value of the minimum lease payments is the interest rate implied in the lease, if only is it feasible to determine. If it is not possible, the lessee’s incremental borrowing rate could be used. Therefore, any initial direct costs of the lessee are added to the amount recognised as an asset. Furthermore, as stated by IAS 17.25, finance lease payments should be allocated

Under IFRS, lease classification depends on whether substantially all of the risks and rewards incidental to ownership of a