Disclosures for Finance Leases under AASB 117

14 September 2018

The Australian Accounting Standards Board also referred to as AASB, has
prescribed the specific accounting treatment, recognition principle and the disclosure
requirements of the leases in the Accounting Standard AASB 117 Leases (AASB,
2015). The section 334 of the Corporations Act 2001 prescribes the application of
the accounting standards as explained under.
According to the definition stated in the paragraph 4 of the AASB 117, a financial
lease has been described as the lease where the title of an asset may or may not be
ultimately transferred to the lessee, but it involves transferring of majorly all the risks
and rewards that are incidental part to the ownership of an asset. Thus, in simple
words it refers to an arrangement where the financing entity is the legal owner of the
asset, for the duration of the asset. However, the lessee has to share the economic
risks involved and returns arising out of the variations in the value of the asset. In
addition, the lessee has the operating control over the asset.
The financial assets have to fulfil the requirements with respect to the disclosure in
accordance with the AASB 138, AASB 116, AASB 136, AASB 140, and AASB 141,
together with the specific disclosure requirements contained in the AASB 117
(Dagwell, Wines and Lambert, 2015). The disclosure requirements of the financial
leases as prescribed in the AASB 117 have been described in the following
segment.
According to the AASB 117, the lessee is required to comply with the requirements
of the AASB 7 Financial Instruments: Disclosures, for the financial assets as
described here under. The requirements to disclose on the part of the lessee have
been prescribed in the paragraph 31 of the AASB 117 (AASB, 2015). Firstly, the
lessee has to report the carrying amount for each of the class of asset, possessed by