Question

In financial accounting and rules of financial reporting

1. What are leases?

2. Why is reporting of them required?

3. What information is disclosed?

4. What does this information tell you about a company?

Answer 1

1. Lease is a legal and binding contract which spells out the term where one party "lessor" agrees to rent the space, equipment etc . To the other party "lessee" in return of periodic lease payments for a specified period of time.

2. Reporting of leases is required as it shows the fixed obligations of lessee and income for lessor. There are a variety of leases such as operating lease and capital lease.

Proper reporting under eachbonevis necessary to depict the true value of business.

3. Information disclosed is lease terms, lease period which is generally above 10 years, wether it is a capital or operating lease, and reporting under different type of lease such as lessee reports rent under operating lease whereas depreciation and interest under capital lease.

4. This information tells us about the expenses or income of a company. The nature of assets on its balance sheet. Its fixed obligations and incomes.