AASB 16 Accounting Standard for Lease Accounting

Added on -2020-02-24

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Company AccountingLeasesSTUDENT ID:[Pick the date]
Company AccountingQuestion 1Two advantages related to the previous AASB 117 for leases are highlighted below.With regards to reporting of leases, the earlier standard was less costly and complexin comparison to the new standard that is applicable in this context.The leverage of the business was truly reflected under the earlier AASB 117.However, under the new norms with capitalising requirements tends to portray thelessee in a more leveraged state than in actuality. Under the new AASB 16 accounting standard for lease accounting, it is quite plausible thatthe businesses would prefer to buy assets instead of leasing the same primarily on account ofthe issues related to incremental requirement related to lease capitalisation. In relation to thebalance sheet of the lessee, the capital lease value is reflected as both an asset along with acorresponding liability. The net worth of the lessee would not be impacted as the two valueswhich are equal in magnitude tend to offset each other. However, there is incrementalliability present which tends to worsen the lessee’s debt equity ratio which the investors andother critical stakeholders may view negatively.Question 2Scenario 1As the customer has three distinct dark fibres allocated which can be physicallyidentified, hence there is an identifiable asset in existence.The various decision making about the use of the fibre in relation to what and howmuch data would be transferred using these three fibres is available with the customerand hence the asset control is also with the customer.The customer has the right to use which is apparent from the fact that even when thethree dark fibres are damaged, the supplier would need to make alternate provisionsand therefore a lease in contained in the contract.Scenario 2In the given case, the customer has been provided a certain capacity instead of aphysical asset with can be identified. Also, the provided capacity is also a smallportion of the total capacity of the cable since it has 15 fibres. Hence, there is noidentifiable asset in existence in the given case.The decision with regards to data transmission and using desired fibres is taken not bythe customer but by the supplier and hence customer control over the asset is lacking.It is apparent that in the given case, the asset control is not transferred to the customerwhich implies that no lease exists based on the given facts.Question 3

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