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.

Solutions

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 1 year ago

Next > < Previous

Related Solutions

Prepare two essays: one on IAS 17 on leases and one on IAS 37 on provisions....

Prepare two essays: one on IAS 17 on leases and one on IAS 37 on provisions. Each essay you must highlight the most relevant points to consider about the standard in the practice of accounting.

The concept of “Quality of Earnings” is widely recognized in the relevant finance and accounting literature....

The concept of “Quality of Earnings” is widely recognized in the relevant finance and accounting literature. a) Explain this concept comprehensively. b) How Earnings quality relate to Market pricing of the stocks traded based on empirical evidence available? c) Apply this concept and its applications in the Palestinian context.

How does the concept of Time Value of Money applied in accounting and finance?

What are the advantages of operating and finance leases?

Treatment plan for shoulder pain– include recommended treatment – cite national guidelines

From the lessee’s perspective, finance leases and operating leases are a little different. In the earlier...

From the lessee’s perspective, finance leases and operating leases are a little different. In the earlier years of a lease, Select one: a. operating leases will cause income to be higher, compared to finance leases b. finance leases will enable the lessee to report higher income, compared to operating leases. c. finance leases will cause debt to be higher, compared to operating leases d. operating leases will cause debt to be higher, compared to finance leases

Topic: Current accounting for leases requires that certain leases be capitalized. For capital leases, an asset...

Topic: Current accounting for leases requires that certain leases be capitalized. For capital leases, an asset and the associated liability are recorded. Whether or not the lease is capitalized, the cash fows are the same. The rental payments are set by contract and are paid over time at equally spaced intervals. Required: If one of the objectives of fnancial reporting is to enable investors, creditors, and other users to project future cash fows, what difference does it make whether we...

Which of the following statements regarding leases is CORRECT? A. Finance leases lower the debt ratio....

Which of the following statements regarding leases is CORRECT? A. Finance leases lower the debt ratio. B. A debit balance in the Leased Asset account on the balance sheet indicates an operating lease that is less than one year. C. Title is transferred to the lessee at the end of an operating lease term. D. If a lease does not meet one of the five criteria provided by U.S. GAAP guidelines, it is classified as an operating lease by default.

Identify the three categories of debt securities and describe the accounting and reporting treatment for each...

Identify the three categories of debt securities and describe the accounting and reporting treatment for each category.

GASB 87 provides a new framework for accounting for leases under the principle that leases are...

GASB 87 provides a new framework for accounting for leases under the principle that leases are financings. No longer will leases be classified between capital and operating. Lessees will recognize an intangible asset and a corresponding liability . The liability will be based on the payments expected to be paid over the lease term, which includes an evaluation of the likelihood of exercising renewal or termination options in the lease. City of El Paso decided to implement early adoption in...

Subjects