International Financial Reporting: Lease Accounting, Capital and Revenue Expenditure, and Inventory Rules

Running head: INTERNATIONAL FINANCIAL REPORTING
International financial reporting
Name of the student
Name of the university
Authors note

1
INTERNATIONAL FINANCIAL REPORTING
Executive summary
The above study deals with the lease accounting process of IFRS 16 lease agreement
and the other rules and regulations as well as the capital and revenue expenditure difference.
The study also deals with the IFRS 2 inventory rules and regulations along with a suitable
conclusion at the end.

2
INTERNATIONAL FINANCIAL REPORTING
Table of Contents
Introduction....................................................................................................................4
Discussion......................................................................................................................4
Part 1- LEASE-IFRS 16/IFRS 17..............................................................................4
IFRS lease accounting treatment............................................................................4
Accounting by lease...................................................................................................5
Reporting by lessor for finance leases and operating leases as carried forward by
IAS 17....................................................................................................................................6
Accounting for financing for the lessee.....................................................................7
Accounting for operating lease by lessee...................................................................8
Impact of the lease accounting on the financial statement.........................................9
Impact of lease accounting on the lessee financial ratio............................................9
PART 2: PLANTS AND EQUIPMENT – IAS 16..................................................10
Difference between capital expenditure and revenue expenditure with example10
Accounting treatment of machine expenditure as per IAS 16.................................12
PART 3 INVENTORIES – IAS 2............................................................................13
Determination of cost of inventory......................................................................13
Cost of inventory acquisition...................................................................................14
Measuring of cost.....................................................................................................15
Conclusion....................................................................................................................16
References....................................................................................................................17
Appendix......................................................................................................................20

3
INTERNATIONAL FINANCIAL REPORTING
Introduction
The above case study discusses the lease accounting treatment which had been
described in IFRS 1 and the same had been carried forward in the IAS 17 rule. The study also
described the lease accounting policy as per the financial assets and lease statements as
described in the IFRS 16. Further the study also discuss the difference between the capital
and revenue expenditure system and, the sufficient effects on the financial assets if the capital
expenditures are wrongly treated as revenue expenditure. Lastly the process of determining
the inventory has been made as per IFRS 2 with a suitable conclusion at the end.
Discussion
Part 1- LEASE-IFRS 16/IFRS 17
IFRS lease accounting treatment
IFR 16 specifies how an IFRS reporter will be able to recognise, measure, present and
disclose the lease volume. Hence the lease volume provides a single lease accounting model
which requires lease to recognise assets and liabilities for all the leases unless the lease term
is within 12 months or less or the asset has been undervalued. The lessors have continued to
classify leases for operating finance. Hence with the IFRS 16 approach to the lessor is
substantially less than the same had been unchanged by the predecessor in IFRS 17.
Objective
IFRS 16 establishes the principles for the recognition, measurement, presentation and
lease disclosure with an objective to ensure that lessor and the lessee tends to provide
equivalent information which faithfully represents those transactions.
Scope