Identify the accounting concept that underlines the recommended treatment of accounting for finance leases in IAS...

Identify the accounting concept that underlines the recommended treatment of accounting for finance leases in IAS 17 Leases, and explain the rationale behind the treatment adopted by the IAS.

Expert Solution

Recommended treatment of financial lease in International accounting Standard 17, states that when risk and reward has been Fully transferred from lessor to the lesse, then, it is a type of financial lease because the ownership of the Asset transferred.

This is done because under financing lease, the asset is most likely to be transferred to the lesse and he's using the asset for a period of the life of the assets he is considered the owner of the Asset at the end of the lease because the risk and reward has been fully transferred.

The rationale behind treatment of financing lease release from the perspective of risk and reward would be as follows-

A. The lease period is almost for 75% of the economic life of the Asset

B. Net present value of minimum lease payment is almost 90% of the total asset value.

So it can be said that under this situation the financial lease is to be considered because almost risk and reward has been transferred from perspective of asset to the Lessee.

jeff jeffy answered 2 years ago

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