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Assignment on Corporate Accounting and Reporting pdf

   

Added on  2021-06-16

5 Pages1255 Words19 Views
Corporate Accounting and Reporting
Assignment on Corporate Accounting and Reporting pdf_1
Lease is a financial arrangement under which the owner of the asset agrees theother party to use this asset for a specified period of time for agreed periodicpayments. The two parties involved are called lessor and lessee. Lessor is the partywho owns the asset and lessee is the one which agrees to use the asset for agreedpayments. The payments involved in this transaction are referred to as lease rentals.Leases can be classified into two categories, financial lease and operating lease.A lease can be classified as a financial lease if it satisfies any of the followingfactors. The present value of the lease rental sum up to almost the price the assettaken on lease.[ CITATION Fab15 \l 1033 ]The period for which lease agreement hasbeen entered into is almost equal to the life of the asset. The lessee has the optionto own the asset at the end of the lease term by paying a nominal amount.Any lease which does not satisfy any of the above factors will be classified as aoperating lease.[ CITATION Gaz17 \l 1033 ]Operating leases are treated as a normalrental contract in the books of both the lessor and lessee. Financial lease are treatedin a different manner in the books of lessee.Treatment of financial lease in the books of lessee is more detailed. The date onwhich the lease agreement is entered into, the lessee is required to be recorded inhis books the value for right to use the asset and lease liability.[ CITATION Knu10 \l1033 ]The right to use the asset shall be valued at the including the following: The amountat which the lease liability is measured along with, any payment made by the lesseebefore or after the commencement of the lease agreement. Also any direct costincurred by the lessee in connection with the lease contract. Lastly, capital costwhich is likely to be incurred by the lessee in relation to the asset, or to bring theasset to the condition it can be put to use.[ CITATION Kus16 \l 1033 ]The above figures will be accounted for as right to use asset in the asset side of thebalance sheet of the lessee.In order to value the lease liability the lessee is required to calculate the presentvalue of the lease payments using the implicit rate. In case the rate is not available
Assignment on Corporate Accounting and Reporting pdf_2

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