1 - There are disclosures required relating to deferred tax amounts. Identify the requirements for such...

1 - There are disclosures required relating to deferred tax amounts. Identify the requirements for such disclosures. What would you do if you were asked by your manager to "leave out" these disclosures from the notes to the financial statements you are preparing?

2- Why do you think there is a difference in recording capital vs. operating leases? Do you think this difference is valid or should all leases be recorded the same?

Expert Solution

1. If a financial statement has to be IFRS compliant, it would have to disclose the deferred tax asset and liabilty separately in the balance sheet of the Enterprise.The basis of the calculation will also be required to be disclosed in the notes to accounts.

If I was asked by my manager to leave out such disclosures , I would reason with him about the legal implications of doing so. If he is not willing to reason with me, I would report this issue to the higher management.

2. A capital lease is one where all risks and rewards related to the asset have been transferred to the lessee but ownership remains with the lessor.

An operating lease is one where the lessee is given the right to use the asset for a short period of time without transfer of the ownership of the asset.

In the case of an operating lease, the asset is not shown in the balance sheet and the lease expenses are charged to the profit and loss account.

Under capital lease, the asset is shown on the balance sheet and lease payments are shown as liabilities.

Expense can be claimed under operating lease for tax purposes and depreciation can be claimed under capital lease.

These differences are valid because in the case of capital lease , in essence the lessee is the owner of the asset whereas in the case of operating lease he is just a user of the asset. Thus, accounting treatment will differ based on the rights in the asset.

ekkarill92 answered 1 year ago

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