Corporate Accounting

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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1CORPORATE ACCOUNTING
Table of Contents
Part A:................................................................................................................................2
Introduction:...................................................................................................................2
Discussion:.....................................................................................................................2
Conclusion:.....................................................................................................................8
Part B:................................................................................................................................9
References:......................................................................................................................11

2CORPORATE ACCOUNTING
Part A:
Introduction:
Lease accounting is deemed to be a significant accounting section owing to the
difference relying on the end-users. The lessees and the lessors disclose and account
for leases in different manner. A lessor is the individual or organisation that owns the
asset and a lessee is involved in using the leased asset through periodic payment to the
lessor (Barone, Birt and Moya 2014). A lease could be defined as the lease agreement
by which the owner of any particular asset allows another party to utilise the asset for a
particular period in lieu of periodic payments to the lessor. A finance lease is deemed to
be identical in buying any asset via external finance. This enables a lessee to own asset
by direct finance from the lessor (Beckman 2016). The lessee has the alternative of
becoming the permanent owner of the asset at the closure of the lease term. The
current essay would aim to analyse accounting for finance lease by lessees.
Discussion:
The finance lease disclosures have to be reported in the accounting books of the
lessor as well as the lessee. In case of the lessees, they have to comply with the
guidelines mentioned in “AASB 7 Financial Instruments”, after which disclosures need
to be made associated with finance leases. In Australia, AASB 117 was used previously
for lease recognition, in which it has been mentioned that the lessees have to report the
net carrying values of each asset group at the closure of the reporting period
(Aasb.gov.au 2019). At present, AASB 16 has been introduced for lease recognition, in

3CORPORATE ACCOUNTING
which no significant changes have been observed in recognition of finance lease
(Aasb.gov.au 2019).
There has to be reconciliation between the total minimum lease payments in
future at the end of the period as well as the present values. After the formation of
reconciliation, it is necessary for any business organisation to undertake relevant
disclosures for three varying timelines. The timelines mainly comprise of less than a
year, between one year and five years and more than five years. During the period of
lease, there needs to be recognition of contingent rents as expense in the same period
(Bragg 2017). It is necessary for the lessees to realise the minimum payments of
sublease estimated to be received under non-cancellable leases at the closure of the
reporting period.
The organisations have to disclose general explanation of the agreements of the
lessees associated with material lease, which need to include various disclosures.
Another disclosure is the development of basis in order to determine the contingent rent
payable. Contingent rent could take the shape of sales, usage amount, rate of interest
in the market or price indices. There is other disclosure related to the existence and
terms of escalation or renewal options as well as purchase options (DiSalvio and Dorata
2014). The last disclosure is related to restrictions of lease agreements like additional
debt, dividends and additional leasing.
In case; the lessee is entitled to all rewards and risks associated with ownership,
the lease is classified in the form of finance lease. It is essential for the lessee to
disclose the leased asset and leased liability on the balance sheet statement. When a
lease does not fulfil any of the above-stated criteria, it would be classified in the form of