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Assignment on Financial Reporting and Analysis

   

Added on  2020-04-07

11 Pages1455 Words34 Views
Finance
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Running head: FINANCIAL REPORTING AND ANALYSIS Financial Reporting and AnalysisName of the StudentName of the UniversityAuthor’s Note
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1FINANCIAL REPORTING AND ANALYSISExecutive SummaryThis report shows that the new AASB 16 standard has more appropriate recognition criteria forboth Financial and Operating leases. In addition, there are some major fundamental differencesbetween Operating and Financial leases. From the 2017 annual report of CSL Limited, it can beseen that the amount of Financial lease and Operating leases of are $22.3 million and $3.1million. Most importantly, it can be seen that the new AASB 16 standard has effective impact onthe financial reports of the companies.
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2FINANCIAL REPORTING AND ANALYSISTable of ContentsIntroduction......................................................................................................................................3Part A...............................................................................................................................................3AASB Lease Recognition Criteria...............................................................................................3Difference between Operating and Financial Leases..................................................................4Example.......................................................................................................................................5Part B...............................................................................................................................................5Implications.................................................................................................................................5Conclusion.......................................................................................................................................6References........................................................................................................................................7Appendix..........................................................................................................................................8
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3FINANCIAL REPORTING AND ANALYSISIntroductionLease is a special contract or agreement in which the lessees has to pay the lessor for theuse of his/her assets for a specific period of time. Thus, it can be seen that leases are an importantaspect in accounting. In lease agreements, the assets have to be tangible in nature. The AustralianAccounting Standard Board (AASB) provides some specific guidelines regarding the recognitionand measurement of leases in the business organizations and the companies need to comply withthese regulations. The main aim of this report is to analyse and evaluate the various aspectsregarding lease agreements in the companies.Part AAASB Lease Recognition CriteriaThere are two types of leases; they are Financial Lease and Operating Lease. AASB hasdifferent recognition criteria for both the leases. They are discussed in the following section:Financial Leases:At the date of the commencement of the financial year, the lessor needs to use theimplicit rate of interest in the leases for the measurement of net investments. In case, it isnot possible for the lessor to determine the implicit rate of interest, it is required for thelessor to use discounted rate for the heading of sublease (aasb.gov.au 2017).At the time of measuring the total amount invested in the financial leases of the company,the lessor needs to include initial direct costs other than the manufacturing costs. Inaddition, the lessor needs to reduce the recognition of the amount of income. The implicitrate of interest in financial leases includes the initial costs of the new lease investments.
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