Which of the following is an example of applying the concept of “substance over form” under...

Which of the following is an example of applying the concept of “substance over form” under GAAP?

Accounting for a lease as a capital lease by a lessee even though legal title to the leased asset has not been acquired

Issuing consolidated financial statements for a parent and its subsidiary corporations even though they exist as separate legal entities

A sale of accounts receivable is not accounted for as a sale when the “seller’ is responsible for covering any losses incurred by the :buyer”

All of the above are examples of substance over form

Expert Solution

substance over form- mainly ensure that financial statement give a complete , relevant and accrued picture of transactions and events .It is particularly relevant in terms of revenue recognition . Under this principle, financial statement will show overall financial reality of the entity (economic substance) rather than legal matter .

Substance over form applicable in case of Lease accounting –as per ias 17 –Leas requires the prepares of financial statement to consider the substance of lease arrangement when determining the type of lease accounting . As asset may be leased to lessee without teh transfer of legal title at the end of lease term. Such a lease may in substance be considered as a finance lease if for instance the lease tem is substantially for entire useful life of the asset or lease agreement entities the lessee to purchase the asset at the end of the lease term at a very nominal price .

A sale of accounts receivable is not accounted for as a sale when the “seller’ is responsible for covering any losses incurred by the :buyer”- Revenue recognition as per IND AS 115 – specially consignment sales –consignment revenues are not recognised when the good delivered to the consignee because control is not transferred .

Issuing consolidated financial statements for a parent and its subsidiary corporations even though they exist as separate legal entities- applicable relates to IND AS 110 consolidation –Control over an investee depends whether the entity has all the three elements control over investee , power over the investee , exposure or right to variable return

ekkarill92 answered 1 year ago

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