Discussion of Ias 17 Leases
ASB-3211 Advanced Accounting Theory & Practice
Assignment: Discussion of IAS 17 Leases
Huixuan HUANG
Student ID: 500284151
Module Organizer: Colin Bradley
Words Count: 1964 words
Date of Submission: 17th April, 2012
Discussion of IAS 17 Leases
Introduction
Accounting for leasing is always being a hot topic. The standard setters of IAS 17 encountered much controversy when they tried to stop charging all lease payments to the income statement. In this essay, firstly, I will point out the key features of the current IAS 17 with its effect on General Electric Company for illustrative example. Then I will analyst the development of IAS 17 and its underling rationale. Finally, the criticisms of the standard will mainly be discussed, followed by the brief debate of proposed new leasing standard.
Key features with example
IAS 17 aims to prescribe the appropriate accounting treatment and disclosure to apply in leased items such as property, plant and equipment for both lessees (the user) and lessors (the supplier).
First of all, IAS 17 defines a lease as “an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time” (IAS 17) and then the standard classified a lease as finance lease if “a lease that transfer substantially all the risks and rewards incidental to ownership of an asset” (IAS 17). All other leases are distinguished as operating leases. It is the most prominent feature of IAS 17. Clearly, the classification of a lease, ignoring the legal form of arrangement, depends on the substance of the transaction instead, which means it concentrate on the “risks and rewards” linked with ownership rest with either the lessee or the lessor. IAS 17 provides five primary situations in detail as indicators which would normally be viewed as a finance lease. Additionally, the land element and the buildings element should be normally considered separately when
Assignment: Discussion of IAS 17 Leases
Huixuan HUANG
Student ID: 500284151
Module Organizer: Colin Bradley
Words Count: 1964 words
Date of Submission: 17th April, 2012
Discussion of IAS 17 Leases
Introduction
Accounting for leasing is always being a hot topic. The standard setters of IAS 17 encountered much controversy when they tried to stop charging all lease payments to the income statement. In this essay, firstly, I will point out the key features of the current IAS 17 with its effect on General Electric Company for illustrative example. Then I will analyst the development of IAS 17 and its underling rationale. Finally, the criticisms of the standard will mainly be discussed, followed by the brief debate of proposed new leasing standard.
Key features with example
IAS 17 aims to prescribe the appropriate accounting treatment and disclosure to apply in leased items such as property, plant and equipment for both lessees (the user) and lessors (the supplier).
First of all, IAS 17 defines a lease as “an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time” (IAS 17) and then the standard classified a lease as finance lease if “a lease that transfer substantially all the risks and rewards incidental to ownership of an asset” (IAS 17). All other leases are distinguished as operating leases. It is the most prominent feature of IAS 17. Clearly, the classification of a lease, ignoring the legal form of arrangement, depends on the substance of the transaction instead, which means it concentrate on the “risks and rewards” linked with ownership rest with either the lessee or the lessor. IAS 17 provides five primary situations in detail as indicators which would normally be viewed as a finance lease. Additionally, the land element and the buildings element should be normally considered separately when
Cited: [4] Elliott, B. and Elliott, J. (2008), ‘Financial Accounting and Reporting’, 12th edition, London: Pearson Education Limited, pp433-448 [5] Grossman, A [10] KPMG. (2011), ‘The Future of Lease Accounting’, IFIS Leases Newsletter, May 2011, Issue 6 [11] Kranacher, M [12] Melville, A. (2011), ‘International Financial Reporting: A Practical Guide’, third edition, London: Pearson Education Limited, pp148-155 [13] Shortridge, R.T