Accounting for Leases - AASB 16

Accounting for Leases – the impact of
AASB (IFRS) 16

ABSTRACT
The present report is related with the new model of the Lease standard, AASB 16. Since the
existing lease standard does not fulfill the requirements of the users of financial report, therefore
the necessary changes in incorporated in the new model. This standard removes the requirement
of the classification of the lease as operating lease or the financial lease. Further, additional
disclosure requirement is also incorporated in the new accounting standard.

Table of Contents
Lease arrangement and its effect on the financial statement...........................................................4
Backgroud of the company..............................................................................................................6
Value of Lease and Accounting rules for lease applied by the company........................................6
Accounting Rules applied by the company.....................................................................................6
Lease Accruals.............................................................................................................................8
Lease incentives...........................................................................................................................8
Non-cancellable operating leases................................................................................................8
Life Cycle and stages in Lease........................................................................................................9

LEASE ARRANGEMENT AND ITS EFFECT ON THE FINANCIAL
STATEMENT
For several business organizations, leasing is considered as a significant activity. As per the
earlier accounting standard, the lease is classified into two aspects, such as financial lease and
operating lease. This model does not meet the prescribed user requirement and proper
presentation of lease activity in the financial accounts of the company. Therefore a latest
accounting standard is approved by the government (Cheng, 2015).
Australian Accounting Standard 16 deals with the Leasing accounting of the entity. As per this
accounting standard, a person has not to classify the lease in the financial lease or an operating
lease. It is based on the exercise of the control and documented as a right to use assets and
corresponding liability. This new model introduces a single model of accounting for the lessee.
All assets and liabilities are recognized by the lessee with a period of exceeding twelve months
(Chatfield, Chatfield, & Poon, 2017). However, if it is a low value, then it should not be
recognized. Moreover, the right of use of assets is measured just as a measurement of non-
financial assets and liability of lease is the same as other non-financial liabilities. Initially, the
assets and liabilities arising from the lease are measured on the basis of present value. Further,
in the measurement of liabilities and assets, non-cancellable lease payments and payment made
by lessee for exercise the option of extension is also considered (Comiran, & Graham, 2016). In
addition, the new model also described the disclosure requirement for lessees. Application of the
judgment for determination of the requirement of the user of financial statement should be
applied by lessee so that user can get the actual and reliable financial data from the financial