Corporate Accounting | Answers to Questions

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:

1CORPORATE ACCOUNTING
Table of Contents
Part A:........................................................................................................................................2
Answer to question 1:.............................................................................................................2
Answer to question 2:.............................................................................................................2
Part B:.........................................................................................................................................4
Answer to question 1:.............................................................................................................4
Answer to question 2:.............................................................................................................5
Part C:.........................................................................................................................................6
Answer to question 1:.............................................................................................................6
Answer to question 2:.............................................................................................................6
References and bibliography:.....................................................................................................8

2CORPORATE ACCOUNTING
Part A:
Answer to question 1:
As per Australian accounting standard AASB 16 and IFRS 16, Lease liabilities as
well as the leased assets are recognized in the books of accounts of the lessee initially. Later
on with the payment of periodic lease rentals, the lease liability is reduced and the right to use
assets or the leased assets is depreciated periodically. Hence, the lease liability and lease asset
both decreases periodically in the books of lessee, but the carrying amount of leased assets
decreases faster than that of the lease liability.
The leased asset is depreciated in straight line method hence, a same amount of
depreciation or amortization is charged every year, whereas, the lease liability is reduced for
payment of periodic lease rentals. Lease rentals are mainly the interest on lease amount.
Hence, the value of leased asset decreases much faster than the decrease in lease liability
(Mackey et al. 2015).
Answer to question 2:
New standards issued by the AASB on lease accounting require the recognition of
lease liability as well as assets in the financial books of accounts. All the companies are
required to follow the new standards mandatorily from 1 January 2019. Including the lease
liability in the books of accounts has an impact on the overall business value or the solvency
of the business as reported in the balance sheet of the company. The new standards on lease
accounting may make it more complex to identify and value the amount of lease liability that
needs to be reported in the balance sheet. Hence, management of the reporting entity might
seem it to be difficult for changing the existing accounting policies and treatments for leases
in the books of accounts ad to comply with the new standards (Mackey et al. 2015).