International Financial Reporting

International Financial
Reporting

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
PART 1: LEASE-IFRS 16/IAS 17..........................................................................................................3
PART 2: PROPERTY, PLANTS AND EQUIPMENTS – IAS 16..........................................................9
PART 3: INVENTORIES – IAS 2........................................................................................................12
CONCLUSION........................................................................................................................................19
REFERENCES........................................................................................................................................20

INTRODUCTION
In order to record financial transactions and preparation of financial reports, there are a
range of standards which need to be followed by companies who are operating at global level.
The international financial reporting can be defined as a process of presenting financial
statements in a manner that is adopted commonly by all companies at international stage (Eng
and Neiva De Figueiredo, 2019). There are different kinds of standards which need to be
consider various types of transactions. The project report consists three parts and each of them is
based on various IAS (International accounting standards). The part one is related to lease
transactions and for which IFRS 16/IAS 17 are described. Part two is related to property, plants
and equipment transactions while the last part of report covers information about IAS 2 which
linked to inventories.
MAIN BODY
PART 1: LEASE-IFRS 16/IAS 17
(a) Discuss the IFRS 16 required lease accounting treatment and reporting by lessor for
finance leases and operating leases as carried forward by IAS 17.
IFRS 16 is a reformed accounting standard which was evolved by IASB (International
accounting standards board) in January 2016. This accounting standard replace the
previous standard IAS 17 (Segal, and Naik, 2019). The objective of this accounting
standard to provide way through which companies can record their lease transactions at
the time of financial disclosure. IFRS 16 enables a specific lessee accounting approach
and needs a lessee to identify assets and liabilities for all leases whose durability is more
than one year. As per this standard, it is essential for lessee to identify a right of use
assets presenting the right to use the underlying leased assets. As well as lease liability
presenting the obligation in order to do payment of leases.
Reason to replace IAS 17: IAS 17 divided leases in two forms which are finance and
operating leases. As per this standard, finance lease was exploited in the balance sheet
and reported in the profit & loss statement as an interest and depreciation expense. On the

other hands, operating lease was reported in the working notes of financial statements and
not exploited in the balance sheet. In addition to this, the traditional method of reporting
operating lease reduced accuracy in actual financial position of firms. As a consequence,
this was not easy for investors to assess actual value of a company so that they can make
investment accordingly.
Reporting by lessor for finance leases and operating leases: The difference between
operating and finance lease is reduced for lessees and a new lease assets and liabilities are
identifying for all leases. As above discussed that lessees must recognize a right of use of
assets and liabilities which are based on discounted pay and needed to the lease. In order
to determine lease term will need judgement that was not required before operating lease
because it did not change the expense recognition. Lessor accounting does not change
and continue to reflect the underlying assets that is subject to lease management in the
balance sheet for leases which are divided as operating. In order to financial
arrangements, the balance sheet informs a lease receivable as well as residual interest of
lessor. It consists some key elements which are needed to followed by lessor such as:
ACCOUNTING FOR FINANCE LEASE BY LESSOR: For lessor, finance lease is
divided in two types. The first one is that if present value of all lease payments is similar
to carrying value of leased assets that is known as direct financing lease (Tóth, 2019).
The second type is that if present value of lease payments is more than carrying value of
leased assets which is known as sales type lease. These both types of finance lease are
recorded by lessor in different financial statements in such manner:
 Balance sheet: The value of receivables from lease is recorded along with the assets
which are decreased by book value of leased assets.
 Income statement: The value of interest revenue is recorded which is computed in
accordance of lease receivables.
 Cash flow statement: The value of interest aspect of lease revenue is recorded in the
operating activity and principle aspect is recorded in investing activities in cash flow.
ACCOUNTING FOR OPERATING LEASE BY LESSOR:
 Balance sheet: Under it, leased assets is recorded.