The International Accounting Standards Board

C. In a sales-type lease the carrying value of the asset is charged to cost of the asset leased (expense), and the present value of the minimum lease payment as the amount of the sale. For direct financing leases no sales or expense is recognized because the asset is removed from the books. The difference between its carrying value and the undiscounted minimum lease payments is recorded as unearned interest revenue. The net investment in a sales type lease ia accounted for in a similar manner as a direct financing

From the above classification we can see that all the points indicate that the leases undertaken by David Jones Ltd as a Lessee are Operating Leases or Finance leases and can be determined using the steps above. Being such a big company, David Jones Ltd has both Operating and Financial leases and they are taken mainly to run the firm’s stores and warehouses. Under the annual report for the half year ended 2013 it is clearly evident that the cost of leasing activities for David Jones Ltd has increased by 4.17mn. “Payments made under operating leases, where the lease agreement includes predetermined fixed rate increases, are recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease. Other operating lease payments are expensed as incurred. Lease incentives received are recognised in the Statement of Comprehensive Income as an integral part of the total lease expense and spread over the lease term.”

In 1973, the Financial Accounting Standards Board (FASB) was created and their mission is “to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.” (FASB.org, 2009a). The FASB is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. Therefore, the FASB plays a vital and important role in protecting the financial well being and the overall stability of our

The difference between operating lease and sales-type lease is that in sales type lease the lessor sets a selling price above the asset cost, thus recognizing an immediate profit at the inception of the lease. Whereas, in operating lease income recognized using a straight-line basis over the life of the lease. Income would be spread out further on a sale-type lease thus spreading out the tax liability over the period of time. Therefore it would be beneficial for Sable Inc. to record the lease of bulldozer as sales type

Also in note 29, operating lease payable is 112.9 million, a 32.4 million increase compare to 2013, which is 40.2% of 80.5 million in 2013.

In order to gain a full perspective on this issue, it is important to first define the concept of a lease. A lease is an agreement conveying the right to use property, plant, and equipment (PP&E) usually for a stated period of time (Diffen, 2015). The two parties involved are the lessee (party paying for use of the asset) and the lessor (party that owns the asset but is leasing to another). Leasing has become incredibly popular, especially for organizations that may be just starting and are attempting to avoid long term investments of

There are various issues involved in leases that may affect the interest of the trucking company. The first issue is related to the improvement cost of the leased asset. It is difficult to determine that this cost should be capitalized or should be treated as an expense. The different types of leases can have a significant impact on the financial reporting of the trucking company. “A sales-type lease or direct financing lease is recognized as an asset and liability on the balance sheet, while in an operating lease the rent payment is recognized as an expense”(Lee, 2003). It is also difficult to determine whether a particular arrangement is a lease or a simple business transaction. These issues may affect the profitability of the trucking company.

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Retail industry is thought to be most affected industry from changes in accounting for leases. At the moment most of the retail leases in the company are treated as operating lease. Changes in the lease treatment means retail companies will no longer be able to expense those leases rather have to capitalise it on balance sheet as asset and liability. Retailers like 7 eleven will book a “right-of-use” (ROU) in assets and present value of future lease payments in liabilities, inflating both the sides of the balance sheet. The income statement will change in terms of the way expense will be recognised and their timing each year. (PWC, september 2015)

In the article “Post-Enron Accounting Rule Requires Companies to Report Leases” by Peter Eavis, as the above title suggest, this requirement applies to public traded corporations, with this rule; operating leases, which were previously stated in the notes of financial statements should be reported it the actual balance-sheet of the corporation. Therefore, this allow stakeholders to better assess the financial obligations of a corporation.

The international Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) initiated a joint project on accounting for leases in 2006, and revised the rules and made an explosion draft in 2014. This exposure draft shifted accounting for lease from an ‘ownership’ model to a ‘right-of-use’ model. The current accounting model report long-term leases as either capital or operating leases, depending on the leases contract’s specific terms. This rule helps company to avoid the assets and liabilities off the balance, whereas the new proposal require the leases of equals or more than one year to be capitalised. This change would influence the financial position and statement due to most operating leases become on-balance-sheet.

CHAPTER 21 Accounting for Leases ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief  Exercises Exercises Problems Concepts for Analysis *1. Rationale for leasing. 1, 2, 4 1, 2 *2. Lessees; classification of leases; accounting by lessees. 3, 5, 7, 8, 14 1, 2, 3, 4, 5 1, 2, 3, 5, 7, 8, 11, 12, 13, 14 1, 2, 3, 4, 6, 7, 8, 9, 11, 12, 14, 15, 16 1, 2, 3, 4, 5, 6 *3.

The Financial Accounting Standards Board has issued for public comment two Exposure Drafts related to its disclosure framework project. The first exposure draft proposes amendments to Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting, Chapter 3 – Qualitative Characteristics of Useful Financial Information. The purpose of this proposed amendment is to clarify the concept of “materiality”. FASB defines materiality as, information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report. Consequently, the Board cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

First, The International Accounting Standards Board (IASB) issues The International Financial Reporting Standards (IFRS) on U.S securities and exchange companies listed.

books and depreciated, and the lessee recognizes lease payments in the income statement in the period in which it is paid.