International Accounting Standards Board ( Fasb )

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Executive Summary Lease is one of the most important measures in providing an overall financial obligations of a company. It’s a way of gaining access to assets, obtaining finance and reducing risk of assets ownership (IFRS Exposure Draft Leases 2013, pp. 5). However, existing lease recognition under standard AASB 117 is limited and inconsistent, it does not provide a clear picture to the existing financial statement users. Thus on May 2013, International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) has issued ED/2013/6 Lease. This report will observe: • The fundamental meaning of the term lease and its characteristics. Then by drawing on ED/2013/6, it will explain how companies (lessees) are required…show more content…
• Type B- Leases of property example land. According to ED/2013/6 entity (lessee) should recognise a lease in the books in the following way: Step 1- Initial Measurement Lessee is required to initially recognise all leases on balance sheet as asset and lease liability at the present value of lease payments. EXCEPTION- Entity is not required to record asset and lease liability in the balance sheet only if the lease is a short term lease. Step 2- Subsequent Measurement (I) Type A leases- Lessee would subsequently measure the amortisation on the right-of-use asset according to the existing IFRS for the non-financial assets, measured at cost, using straight line method or other systematic method which represents the use of an asset. Further, the unwinding of the discount on the lease liability (as interest) will be shown separately from the amortisation of the right-of-use asset. (II) Type B Leases- Lessee would recognise periodic lease expenses (amortise the right-of-use asset) on a straight-line basis over the lease term. The lessee would recognise periodic lease expense as the greater of the following: • Calculated amortisation cost at the start of the period using straight line method. • Interest expense for a period on the lease liability by using the effective interest method. In this case, lessee would need to combine the amortisation of the right-of-use asset with the unwinding of the discount on the lease liability. In both of
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