Question

The main change is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating lease. Lessees should be required to recognize the assets and liabilities arising from leases on the balance sheet. The Board consulted extensively on the approach to lease expense recognition and considered a few alternatives. Though there will not be any financial impact, as the asset is increased along with increase in liabilities, this presentation will give an accurate picture of financial position. Assets are expenditure from which future economic benefits are expected to occur. In an operating lease agreement, the lessee is going to get future economic benefits from the asset. Hence, the same can be recognized and presented. Similarly, as the lessee also has obligations arising from past events, the lease payments are shown as liability. Disclosure in financial statements will not present the financial impact on financial position. Hence, this presentation of asset and liability is more apt.

It is an improvement, as more than disclosure, financial impact is quantified and recognized in financial statements. The liability arises from past events and hence, according to the principles of accounting, it should be recognized. Similarly, asset should also be recognized.

Question: Companies receive future economic benefits from employees. Should they list employees as assets, and future salaries as liabilities? What is the difference?

Answer 1

Employees to be treated as asset or liability, both the arguments are listed below:

• As an Asset - Employees should be listed as assets beacuse it would be in the best interest of company if they increase the value of their assets. This can be achieved through providng training, developing and improving the human resource in their organization. If there is a committed workforce, this would result in higher productivity and lower staff turnover. So, the employee could be considered as assets of the company. The more they invest in them, the higher would be economic value of the company.
• As a liability - On the other hand, apart from salaries and wages, if there is lack of attention or lack of appreciation towards the staff, this may lead to their disinterest in work. Instead of becoming a valuable asset, they becomes a liability of the company, where company is required to pay the salaries as well as desired productivity may not be achieved.

Therefore, employee to be treated as asset or liability depends on the involvement and efforts of company.