When new accounting standards are introduced or changes to existing accounting standards are made, this can have a substantial impact on an organisation’s financial reporting, as well as on investors and other stakeholders. Soosa Ltd is an independent shoemaker that uses two identical pieces of machinery in its factory. Both were acquired for use on the same day, as follows: Machine 1 was rented from Brema at a cost of €250 per month, payable in advance and terminable at any time by either party. Machine 2 was rented from Bianco at a cost of eight half-yearly payments in advance of €1,500. Required: Are the two machines rented by operating or finance lease? You are required to critically analyse the differences (if any) identified in the accounting and reporting treatment (effect on financial statements) under both of these options. Identify the recent changes under IFRS 16 ‘leases’, then critically analyse and discuss the consequences that the new standard has for the company under the terms of the lease contract.
When new accounting standards are introduced or changes to existing
accounting standards are made, this can have a substantial impact on an
organisation’s financial reporting, as well as on investors and other
stakeholders.
Soosa Ltd is an independent shoemaker that uses two identical pieces of
machinery in its factory.
Both were acquired for use on the same day, as follows:
Machine 1 was rented from Brema at a cost of €250 per month,
payable in advance and terminable at any time by either party.
Machine 2 was rented from Bianco at a cost of eight half-yearly
payments in advance of €1,500.
Required:
Are the two machines rented by operating or finance lease? You are
required to critically analyse the differences (if any) identified in the
accounting and reporting treatment (effect on financial statements)
under both of these options.
Identify the recent changes under IFRS 16 ‘leases’, then critically
analyse and discuss the consequences that the new standard has for the
company under the terms of the lease contract.
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