Corporate Accounting and Reporting: Treatment of Lease in the Book of Lessees

Running Head: Corporate accounting and reporting
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Project Report: Corporate accounting and reporting

Corporate accounting and reporting 2
Introduction:
This report has been prepared to evaluate the treatment of lease in the book of lessees.
The treatment of each journal entry is required in a business to maintain the correct
information and finance of the business. Lease is a contract in which one party conveys the
fixed assets such as land, property, services etc to another party for a specific time period in
consideration of periodic return. It is crucial for both the parties to maintain the proper
recording of the transactions. The party which uses the assets are called lessors and other
party which get the periodic return against their assets called lessee.
Accounting for finance lease by lessees:
The AASB 16 depicts about the lease process and the leaser treatment in the book of
lessors and lessee. It depicts that an organization should maintain the record of all the lease
transaction to offer the fair value about the company to its stakeholders. The ASSB 16
standards has been set by AASB in order to recognize, measure, presentation and disclosure
all the information related to the lease in the books of related parties (Wong, Wong & Jeter,
2016). The ASSB makes it sure that the lessee and lessors offers the relevant information in
their books about the assets in order to represent the fair value of the transaction.
In case of accounting treatment of lease in the books of lessee, it has been found that
the lease amount must be recognized at the commencement date. The lasses must recognize
the liability of the lease assets and the right-of-use assets (Tang, 2008). The measurement of
the lease assets must be done in the following manner, in the books of the lessees:
 At the date of commencement, a lessee is required to calculate the right-of-use cost of
the lease assets.
 right of use asset’s cost must be comprised as follows:
a) The amount of the initial measurement of the lease assets
b) Any lease payment which has already been made by the company before the
commencement date deducted from the lease incentives
c) All the direct cost which has initially taken place (AASB, 2015)
d) Estimation of dismantling and removing cost of underlying assets.
The subsequent measurement of right of use assets of the business are as follows:

Corporate accounting and reporting 3
Cost method:
 In order to follow costing model, a lessee should identify the cost of the right of use
assets at book cost:
a) Lessees is required to less any accumulate depreciation from the assets along with the
accumulated impairment losses
b) Adjusted for any measurement of lease liability which has been described in the
ASSB 16
 The ASSB 116 of property, plant and equipment must be followed din case of
charging the depreciation amount on the assets (Qian & Burritt, 2011).
 If by the end of the maturity time period, the lease transfers the possession of
underlying lease asset to the lessee then it must be reflected in the asset area and a
purchase transaction must also be seen in the income statement of the company
 A lessee is required to apply AASB 136 “impairment of assets” in order to decide that
whether the right-of-use assets is impaired and identified in the annual reports of the
company.
Other measurement models:
 If the lessee plans to apply the fair value model in the books to represent the lease
amount than the AASB 140 “investment property” rule must be applied and the
amount must be recognized accordingly.
 AASB 166 could also be applied by the lessee in case of revaluation model method to
represent the right of use assets worth of the lease asset in the annual reports and book
of the company (AASB, 2018).
The accounting process of lease by lessee is as follows:
Accounting for finance lease:
The finance lease must be reported in the lessee in the different financial statement of
the company as follows:
Balance sheet:
The lessee is required to record both the leased asset and liability in the final financial
statement i.e. balance sheet of the company. The worth which is reported in the statement of