Financial Reporting, Leasers Essay Example | Topics and Well Written Essays - 1500 words

Financial Reporting, Leasers - Essay ExampleIn an direct lease, lease payments ar recognized as an write down on a straight-line basis over the lease term unless another(prenominal) systematic basis is more legate of the time-pattern of the entitys benefit.In the case of a pay lease, the lessee recognizes the lease as assets and liabilities in their financial statements at an amount equal to the fair value of the leased property. If the amount is lower, wherefore at the present value of the minimum lease payments, each calculated at the start of the lease. When calculating the present value of the minimum lease payments, the deduction rate used is the interest rate implicit in the lease. If this is not practicable to determine, then the lessees incremental borrowing rate is used. All initial cost of the lessee are capitalized to the asset amount recognized. Minimum lease payments are apportioned between finance weight and the reduction of the outstanding principal liability. The finance charge is set in such a way that it produces a constant rate of interest on the outstanding balance of the liability.Lessors present assets subject to operating leases in their balance sheets according to the reputation of the asset. Lease income from operating leases is recognized in income on a straight-line basis over the whole lease term, unless another systematic basis is more representative of the time-pattern of the entitys benefit. ... Treatment in the book of lessorsOperating LeasesLessors present assets subject to operating leases in their balance sheets according to the nature of the asset. Lease income from operating leases is recognized in income on a straight-line basis over the whole lease term, unless another systematic basis is more representative of the time-pattern of the entitys benefit. Initial direct costs incurred by lessors in negotiating and arranging an operating lease is to be added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.According to paragraph 56 of the incumbent IAS 17 Leases, Lessors shall, in sum to meeting the requirements of IFRS 7, disclose the following for operating leasesThe future minimum lease payments low non-cancellable operating leases in the aggregate and for each of the following periods1. Not posterior than one year2. Later than one year and not later than five years3. Later than five years. Finance LeasesFor initial erudition, lessors recognize their assets held under a finance lease in their balance sheets and present them as receivable at an amount equal to the net investment in the lease.The recognition of finance income is to be based on a pattern reflecting a constant periodic rate of return on the lessors net investment in the finance lease.AnalysisNow, the above introductory information should put us in a position so as to judge the effect of the proposed changes in the IAS against the benchmark incumbe nt IAS 17 Leases.DisadvantagesThe proposed changes in the IAS would render the operating lease to be treated in the same way as a finance lease. For the