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Financial Reporting - Australian Accounting Standards (AASBs)

   

Added on  2020-04-01

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Financial Reporting 1FINANCIAL REPORTING By NameCourse TitleInstructor’s nameName of InstitutionName of Department

Financial Reporting 2Financial Reporting - Australian accounting standards (AASBs).Executive Summary This particular report attempts to evaluate and comment on the information regarding leases provided in the Freedom Foods Group Limited (FNP) annual reports. Freedom Foods Group Limited is considered to be a differentiated food corporation operational in the Wellness and Health sector in a variety of brands encompasses freedom foodstuffs based in Australia (Ji, and Deegan, 2011). The business was formed in 1991 to offer diverse products to its customers. The new IFRS 16 brings most leases on statement of financial position for lessees in a single standard, abolishing the difference between finance and operating leases. Under AABS 16 – Leases, the lessee will be obliged to recognize liabilities and assets for contracts with conditions of more than twelve months and also requires that both forms of a lease be realized on the balance sheet (Annan, 2014). Generally, the new IFRS 16 requirements abolish almost all off-balance sheet lessees accounting and re-define many frequently used financial metrics like EBITDA and leverage ratio. This aspect will basically rise comparability but may also impact agreements, cost of borrowing, credit rating and the company shareholders perceptions (Annual Report note 16, AASB 101.26). AASB 16 basically presents a single lessee model of accounting and obliges a lessee to realizeliabilities and properties for all leases with a period of more than twelve months except the fundamental property is of low cost. It sets out the principals for the measurements, presentation, recognition, and exposure of leases (Deegan, 2012). According to this particularstandard, a lessee is needed to realize a right of usage of assets that represents its right to utilize the fundamental leased property and a leased liability that represents its liability to make payments on lease. According to AASB, the leaser will be required to state a capital lease as a liability and as an asset at the sum that is equivalent to the present cost at the start of the lease period (Wong, and Joshi, 2015).

Financial Reporting 3In this case, Freedom Foods Group Limited will be required to recognize any lease agreementsuch as capital lease as a liability and as an asset at the cost that is considered to be equivalentto the present cost at the start of the lease moment in the lease period agreement (ElGazzar, Lilien, & Pastena, 2008). Under AASB 110 Presentation of Financial Statements and AASB Conceptual Framework, the accounting standard for lessees will basically require lessees to realize all leases on the balance sheet except for the short term leases and leases of low cost properties (Annual Report note 31, AASB 98.90). Difference between finance lease and operating leaseA finance lease is considered to be an agreement where the rewards and risks are shifted to the leaseholder with the transfer of the property. It is also a lease agreement in which a leasing firm purchases the property for the consumer and then leases it to them for a particular contracted time. In this case, a lessor basically charges a rent as their payment for contracting the property to the lessee and the lessor preserves possession of the property but the lessee acquires unlimited use of the property provided it notes the conditions of the lease (Biondi, Bloomfield, Jamal, Ohlson, & Wilks, 2011). Consequently, an operating lease is considered to be the rewards and risks that are related to ownership of the leased asset and aretransferred to the lessee. It will ordinarily run for not more than the entire profitable life of the property, and the lessor will presume the property to have a re-sale cost at the conclusion of the lease period. Operating lease is also a commercial covenant where the lessor allows thelessee to use the property for a period lessor that the property economic life against the rental payments. According to the Freedom Foods Group Limited annual reports, the company leased plant and equipment and motor vehicles as a finance lease so as to utilize the property in its day to day company operations (Buchman, Harris, & Liu, 2016). In this case, the company will record the assets as a liability in its balance sheet while the lessor will record the same

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