Corporate Accounting And Reporting IAS 17: Leases

Disclosure for Finance Leases

Discuss about the Corporate Accounting And Reporting IAS 17.

IAS 17 Leases explain about the accounting policies as well as disclosures that are applicable to leases and it is for both lessees as well as lessors (Weidner 2017). In addition to that, Leases can be categorized into two types and these are finance leases and operating leases. In this study, proper emphasis has been given on understanding about finance leases that transfer substantially all the risks as well as rewards of ownership and this can be done by giving rise to asset and liability recognition by the lessee as well as receivable by the lessor in that case (Bertomeu, Magee and Schneider 2018).

The main objective of IAS 17 is to propose on behalf of both lessees and lessors on matters relating to suitable accounting policies as well as disclosures as it is applicable in relation to both finance as well as operating leases (Spencer and Webb 2015). Furthermore. IAS 17 fails to apply based on measurement for the given leased assets such as biological assets that is held by the lessees under the finance leases as it is mentioned in IAS 41 (Bertomeu, Magee and Schneider 2018).

In this disclosure, it is mentioned about the carrying amount of asset as well as reconciliation that took place between minimum lease payments as well as their present value at the same time (Osei 2017). It is all about the amount of minimum lease payments as shown in the balance sheet date as well as present value that include figures from the next year, years 2 and 3 combined and beyond 5 years. In addition to that, the disclosure even mention about the contingent rent and this is treated as expense. Furthermore, it is important to consider the total future minimum sublease income as it comes under non-cancellable subleases. Therefore, the disclosure takes into account general description of significant leasing arrangements such as contingent rent provisions, restrictions that is imposed on dividends as well as purchase or renewal options and borrowings or further leasing activities (Bertomeu, Magee and Schneider 2018).

In this disclosure, it is mentioned about the reconciliation that is present between gross investment in the lease as well as present value of the minimum lease payments (Müller, Riedl and Sellhorn 2015). In addition to that, it can be seen that the gross investment and present value of minimum lease payments receivable can be used for the next year, years 2 and 5 combined and beyond the time span of 5 years. In this disclosure, it is mentioned about the unguaranteed residual values, unearned finance income as well as accumulated allowance for uncollectible lease payments receivable. The disclosure even takes into account contingent rent as treated under income as well as general description of significant leasing arrangements (Bertomeu, Magee and Schneider 2018).

Disclosure Lessees- Finance Leases (IAS 17.31)

A lessee must be splitting the finance lease liabilities between current liability as well as non-current liability. To explain in detail, the current liability is the amount of principal payable within the next 12 months after adding up accrued interest. On the other hand, non-current liability is the amount of the principal that is payable for a period that is greater than 12 months (Lubbe, Modack and Watson 2014).

The given disclosures is mentioned in IAS 16 under the heading Property, Plant and Equipment. This standard applies to lease assets as they are being treated as tangible non-current assets and shown in the financial statements of the lessee (Bertomeu, Magee and Schneider 2018).

It is important to understand the fact that IAS 17 need the several disclosures as shown in the financial statements of the lessee (Lim, Mann and Mihov 2014). In this, it can be seen that each of the given class of asset had to be held under finance leases at the end of the reporting period by considering the net carrying amount at the same time (Bertomeu, Magee and Schneider 2018). In addition to that, a reconciliation or analysis of the total future minimum leases payments are treated at the end of the reporting period by viewing at the present value of future minimum lease payments as it takes into account dividend into amount as it is falling due values under discounted to payment day values in the most effective way (Gordon et al. 2015).

On analysis, it can be seen that general description of the material leasing arrangements of the lessee takes into account details of contingent rent payable as well as purchase of escalation clauses after adding lease restrictions in place and these are for dividends, dents and even considering further leasing restrictions (Bertomeu, Magee and Schneider 2018). In addition to that, contingent rents can be treated as expenses for a given period of time. As far as contingent rent is considered, it can be seen that the amount above the minimum leases payments cannot be kept fixed by nature. Some of the factors are taken into consideration for instance, linking with important factors like sales in case of retail unit, interest rates as well as price index at the same time (Lim, Mann and Mihov 2014).

At the end of the section, it can be concluded that disclosure requirements are done for both (lessee and lessors) and even it is applied equally at the time of conducting sale as well as leaseback transactions. In addition that, the needed description of significant leasing arrangements give rise to leasing disclosures of unique or unusual provisions of agreement or terms for understanding the sale as well as leaseback transactions. Therefore, the sale as well as leaseback transactions has the ability to meet the separate disclosure criteria as mentioned in the paragraph 12 of the Accounting Standard  under the heading changes in accounting policies.

Allocation of Impairment Loss

Reallocation of CGU

Journal entries for recording the impairment loss

Reference List

Bertomeu, J., Magee, R.P. and Schneider, G., 2018. Voting over Disclosure Standards. European Accounting Review, pp.1-26.

Gordon, E.A., Bischof, J., Daske, H., Munter, P., Saka, C., Smith, K.J. and Venter, E.R., 2015. The IASB’s discussion paper on the Conceptual framework for financial reporting: a commentary and research review. Journal of International Financial Management & Accounting, 26(1), pp.72-110.

Lim, S., Mann, S. and Mihov, V., 2014. Market Recognition of the Accounting Disclosure and Economic Benefits of Operating Leases: Evidence from Borrowing Costs and Credit Ratings.

Lubbe, I., Modack, G. and Watson, A., 2014. Financial accounting GAAP principles. OUP Catalogue.

Müller, M.A., Riedl, E.J. and Sellhorn, T., 2015. Recognition versus disclosure of fair values. The Accounting Review, 90(6), pp.2411-2447.

Osei, E., 2017.The financial accounting standards board (fasb), and the international accounting standards board (iasb) sings similar tune: comparing the accounting treatment of new ifrs 16 with the ias 17, and the new fasb model on leases.Journal of Theoretical Accounting Research, 13(1).

Spencer, A.W. and Webb, T.Z., 2015. Leases: A review of contemporary academic literature relating to lessees. Accounting Horizons, 29(4), pp.997-1023.

Weidner, D.J., 2017. New FASB Rules for Leases: A Sarbanes-Oxley Promise Delivered. Business Lawyer, 72(2), p.367.

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