Question

In: Accounting

Consider the sales manger's position and the CFO's position. Present both sides and come to a...

Consider the sales manger's position and the CFO's position. Present both sides and come to a consensus as to the best position. Defend your decision. Additionally, the CFO has asked for your guidance in evaluating leases. How do you determine whether substantially all of the risks and rewards of ownership are transferred in the lease. Address how "substantially all" is defined in the authoritative literature.

Expert Solution

1) The Accounting Standards AS 19 is mainly deals with the Leases.

But as per Indian Accounting standards the leases are mainly deals with the IAS 17.

The leases are mainly classified as an 2 types.

1) Financial Lease

2) Operaring Lease

Financial lease is an lease which an substantially transfer all the risks and rewards which are incident to the ownership of an asset.

The Word Substantially transfer all the risks and rewards denotes the lessor does not have any risks which it relates to the asset they should transfer all the expenses which it requires to incur all the expenses by owner itself.

The risks and rewards includes what ever dividend, interst , income form the asset should be received by the lessee itself.

The risks includes the expenses such as insurance, other operating expenses, depreciation is to be consider by the assesee itself.

The asset should transfer at the end of lease term.

The lessee has an option to purchase the asset from the lessor that fair value.

The lease term is having significant part of the asset for an economic life .

The leased asset is specialized in the nature and may only suit the needs of the lessee with out modification.

The present value of the future lease payment amounts substantially all of the assets fair value.

If all the conditions are satisfied then it is to be consider as an Financial Lease.

Operating Lease is an lease which is not an financial lease.

The word substantially means all the expenses and income had to be transferred to the lessee.

ekkarill92 answered 1 year ago

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