Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Your paper should be a minimum of 2000 words in length

Your paper should be a minimum of 2000 words in length

Writing

Your paper should be a minimum of 2000 words in length. Recognizing this need for a proper accounting of lease financing transactions the International Accounting Standards Board (IASB) has issued IAS 17 in respect of the leasing and financial instruments in the year 1982. It is observed that in spite of the changes that these standards propose to bring about the companies are still able to resort to Off Balance Sheet Financing which vitiates the objectives of the standards introduced by IASB. This paper presents a detailed review of the effectiveness of IAS 17 in achieving its objectives and comments on the new standards proposed to be issued in this respect.

"A finance lease should be reflected in the balance sheet of a lessee by recording an asset and a liability at amounts equal at the inception of the lease to the fair value of the leased asset net of grants and tax credits receivable by the lessor. if lower at the present value of the minimum lease payments." (Khan, 2007) The lessee should be appropriated between the finance charge and the reduction of the outstanding liability. A finance lease involves the accounting of the depreciation charge for the leased asset as well as the financing charge for the relevant accounting period. In respect of the operating lease the rental expenses for the accounting period shall be charged to income. The charge to income should be recognized on a systematic basis which represents the time pattern of the benefits for the user.

The amount of the assets that are subject to finance lease should be disclosed at the values as at the balance sheet date. Liabilities relating to the leased asset should be disclosed separately from other liabilities. The liabilities are to be differentiated between the current and long term portions. The lessee's commitment for minimum lease payments under finance lease or non-cancellable operating lease having tenure of more than a year should be disclosed in summary form. This disclosure should specify the amounts and periods in which payments would become due. The accounting statements should also specifically disclose any significant financing restrictions or other conditions attached to the leases.

Accounting and Disclosure under IAS 17 by Lessor

An asset held by the lessor under finance lease should not be disclosed in the balance sheet as property, plant and equipment. Alternatively the asset item should be shown as receivable at value that equals the net investment in the lease. The recognition of finance income on the lease should be calculated using any specific pattern that reflects a constant periodic rate of return. This rate of return should be based on either the net investment outstanding or the net cash investment outstanding in respect of the particular lease under consideration. There is no specific method prescribed for estimating the value or the net return. Rental income on the lease should be recognized on a straight line basis over the term of the lease unless the lessor finds any other systematic basis that is more representative of the time pattern contained in the lease contract concerning the earning process.

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE