THE ADVANCED ISSUES IN ACCOUNTING

Running head: ADVANCED ISSUES IN ACCOUNTING
Advanced Issues In Accounting
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ADVANCED ISSUES IN ACCOUNTING
Table of Contents
Understanding of lease arrangements 2
Impact on the financial report 2
Summary of the companies 3
Impact 4
Short and Long Term Impacts 5
Demonstration 7
Reference 8

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ADVANCED ISSUES IN ACCOUNTING
Understanding of lease arrangements
The lease arrangements are those arrangements in which one of the parties has to pay
another party for using the assets of the other party (Chen et al., 2018). The party that is using
the asset of the other party is known as the lessee and the party who is the owner of that asset
is known as the lessor. These types of arrangements between the lessee and the lessor are
made on a contractual basis.
Impact on the financial report
There are various changes in the financial reports that can occur due to the changes in
the standards for the lease arrangements. Firstly, there is be major changes in the presentation
of the cash flow, balance sheet and income statement of the companies (Graham, & Lin,
2018). There are two types of lease arrangements namely the operating lease and the finance
lease. In the case of the operating lease arrangements generally, the assets and the liabilities
are not reported in the balance sheet of the company. But the expense that is made on the
lease arrangement is included in the income statement of the company (Lin & Graham,
2018). While in the cash flow statement of the company the rent expense on the lease
arrangement of the company is declared as the cash outflow of the company. The second type
of lease arrangement is the finance lease. In this type of lease arrangement, the assets and the
liabilities both are recorded. But these two are recorded at the lowest value of the present
values of the lease payments that are to be made in the future. On the other hand, the lessor or
the owner of the assets will record the lease payment as a sale. The present value of the lease
payments that are to be received will be considered. For the owner of the assets, the gross
profit will be recorded as the sales minus the cost of goods sold (Giner & Pardo, 2018).
Again, in case the owner of the asset that has been leased is not the producer of the asset then
the gross profit will be recorded as zero. Here, the asset is not mentioned in the balance sheet
if the owner of the asset instead of the lease that is receivable is recorded in the balance sheet.