Relevant Disclosure in Finance Leases as per AASB 117 (IAS17)

This essay examines the relevant disclosure in relation to finance leases in accordance with AASB 117 (IAS17). It discusses the disclosure requirements for both lessors and lessees, and the accounting treatment of finance leases. The essay also highlights the impact of the new accounting standard AASB 16 on finance leases.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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Table of Contents
Part A............................................................................................................................2
Introduction...............................................................................................................2
Discussion.................................................................................................................2
Conclusion................................................................................................................4
Part B............................................................................................................................5
References...................................................................................................................7

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Part A
Introduction
According to business organisation lease is explained as a contract where
lessor convenes the lessee towards the payment or the sum of payment to handover
the right of using the asset till the time noted in the contract. There are two types of
lease say, operating and finance. The essay will put stress on examine the relevant
disclosure that is in relation with finance leases in accordance to AASB 117 (IAS17).
Bhattacharyya (2013) commented that finance lease is termed as lease where all the
risks as well as rewards are given to the lessee as per their ownership. There is an
option provided to the lessee for purchasing the leased asset that is lower at rate in
compare to the fair value of the respected asset. On 1st January new accounting
standard AASB 16 replaced AASB 117. But there is no impact on finance lease
because the new standard has stressed on operating leases.
Discussion
Lessors as well as lessees both are responsible for disclosing the transaction
of the fiancé lease. In case of lessee requirement as per AASB 7 Financial
Instruments: Disclosures shall be met. As per “Paragraph 31 of AASB 117”, it is
vital on the part of lessee to show the net carrying amount regarding every group of
asset at the end of recording year. Considering the present value of the asset at end
of the accounting period there is a requirement for reconciliation for the minimal
lease payment as a whole. The other step after reconciliation the company shall
require to make all the supportive disclosure as per the three distinct frame of time.
The time frame ranges are one year, above one year and the last one below as well
as above five year (Aasb.gov.au 2019). On the continuation of lease the payments

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are realised as expenses for the year in which it is received. The standards give the
permission to the lessee that through the way of expense contingent rents can be
realised. The lessee’s requirement is to recognise the general eligible sublease
expenditures predictable to be attained underneath non-cancellable subleases at the
termination of the recording year (Bhattacharyya2013).
The company requirement is to arrange for overall explanation of the lessees’
contracts associated to substantial lease that shall consist of assured disclosures.
One such revelation is the preparation of base for determining depending rent
outstanding. Contingent rent valour be in the procedure of auctions, quantity of uses,
market place interest rate or rate directories. One more revelation is related with the
positions and survival of restitution or appreciation sections and acquisition choices.
The concluding revelation is the occupancy contract limitations like those regarding
bonuses, unwarranted debt and additional leasing.
The para 47 of AASB 117, states the other standards for the lessors that is
related to finance lease. The requirement mentioned on the part of lessor is that the
lessor would reconcile among the gross investment and the current value at the end
of recording year in respect to receivable of least payment of lease on the start of
accounting year. The major requirement for the corporate is regarding the revelation
of gross investment as well as the current value of the least value to be paid in
accordance to three different timeframe (Bohušová, 2015).
The additional revelations states that the lessor requests to make creation of
undeserved economic income and unguaranteed enduring values unsettled to the
lessor’s advantage. There are further revelations that the lessor wishes to make as
well to act in accordance with AASB 117 necessities. One and only of them is the

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accrued payment for individuals negligible lease expenditures receivable, which are
non-collectable. The others comprise depend in rentals comprehended in the form of
expenditure and over-all clarification of the physical rental arrangements of the
lessor.
On the end of accounting year, the element of liability of a company is related
to the obligations in respect to lease. The obligation on the side of finance lease is
inclusive of capital balance that is being added to accrued interest that are not been
paid. Under current liability the principal amount as well as the accrued interest that
is not paid shall be recorded. The non-current liability would reflect the balance of
principal amount that is to be paid in the future. As the risk is passes to the lessee at
the time of transferring ownership the asset is not recorded as PPE. So, lessor
record finance lease as receivable. This would be the primary amount noted
underneath net investment in lease that would be the fair value of the asset.
Conclusion
During the procedure of the lease period, the rent payment of the lessor will
include of primary repayment as well as interest or investment income on the
unresolved principal. The principal reimbursement would lead to reduction of the
total principal amount, that is so far to be acknowledged from the lessee and the
bookkeeping management of interest revenue would be exposed as revenue in the
income declaration of the apprehensive establishment. (Cherry and Schwartz, 2013).
As the term of lease is over the asset is given back to the lessor or lessee
purchases the asset. These situations are better explained in the form of journal
entries. Returning of asset to the lessor is debited whereas the asset being is leased
is credited for identifying the move of the leased asset to the lessor. When the
purchase of asset is done by the lessee the asset is debited and bank account is

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being credited in order to clarify the asset in purchase form. In case if lessee cancel
in the agreed time, the lessee would pay off the loss.
Part B

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References
Aasb.gov.au., 2019. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB117_08-15.pdf [Accessed 21
January 2019].
Bhattacharyya, S.C., 2013. Financing energy access and off-grid electrification: A
review of status, options and challenges. Renewable and Sustainable Energy
Reviews, 20, pp.462-472.
Bohušová, H., 2015. Is Capitalization of Operating Lease Way to Increase of
Comparability of Financial Statements Prepared in Accordance with IFRS and US
GAAP?. Acta Universitatis Agriculturae et Silviculturae Mendelianae
Brunensis, 63(2), pp.507-514.
Cherry, A.A. and Schwartz, B.N., 2013. What's the Rush? IFRS, the SEC, and the
Pressure on Accounting Instructors to Teach Still More Financial Reporting
Rules. American Journal of Business Education, 6(2), pp.161-176.
Sheshadri, A. and Lease, M., 2013, November. Square: A benchmark for research
on computing crowd consensus. In First AAAI Conference on Human Computation
and Crowdsourcing.
Wong, K. and Joshi, M., 2015. The impact of lease capitalisation on financial
statements and key ratios: Evidence from Australia. Australasian Accounting,
Business and Finance Journal, 9(3), pp.27-44.