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International Financial Reporting: PDF

   

Added on  2021-02-20

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INTERNATIONALFINANCIALREPORTING

Table of ContentsINTRODUCTION...........................................................................................................................................3MAIN BODY..................................................................................................................................................3Part (1) ....................................................................................................................................................3Part (2)...................................................................................................................................................11Part (3)...................................................................................................................................................14CONCLUSION.............................................................................................................................................17REFERENCES..............................................................................................................................................18

INTRODUCTIONThe international financial reporting can be defined as a process of producing the financial statements on the basis of international accounting standards (Alali and Foote, 2012). Eventually, it is necessary for the organizations who perform at a global level to implement various kind of accounting concept and standards. Generally, the accounting standards are issuedby the international accounting standard board. Herein, the project report various kind of accounting standards are mentioned that helps to the companies to take crucial decision making.The project report covers about the various accounting treatments in an individual accounting standard as well as defines about way to apply accounting treatment on the financial treatments. Apart from it, report is categorized into three parts that consist knowledge about IAS 17, 16 and 2.MAIN BODYPart (1)(a) Description about international accounting standard 16 for lease treatment.Lease can be defined as an agreement that is related to conveying the one party the right to use property. Lease contract- It is a kind of contract between two parties wherein, one party gives rightto another party to use of an assets for a particular time period. Characteristics of a lease contract:The term lease includes non cancellable time period of a lease with both to the time covered by an option to extend the lease. As well as time period covered by an option to limits the lease contract.In IFRS 16, those leases are covered which are of 12 months.There are certain conditions and rules of lease agreement. According to the international accounting standard 16, the accounting policies and principles are applicable for both to the lessees, lessors (About accounting standard,2018). Eventually, the leases are categorized as finance lease and operating lease. Eventually, the IAS 16, was evolved for lessors and lessees as well as for accurate accounting policies and principles

which are needed to be applied in relation to finance and operating lease. Herein, below some principles are mentioned below which should be implemented in the financial statements of lessees for finance lease:During the commencement of lease, the finance lease must be considered as an assets andalso recorded as assets. As well as should be taken as liability at the lower value of the assets and present value of the total payment of the lease. Apart from it, the depreciation policy for any particular assets that covers under the finance lease must be consistent (Cotter, 2012). As well as if it is not clear that lessee willget the ownership in the end of lease then the assets should be depreciated during the short time period of lease term. Additionally, the payment of finance lease should be divided between the finance charge and minimized outstanding liability. Herein, it is important to know that finance charge should be assigned such as to produce the equal rate of interest on balance of liability.So this is all about the finance lease that must be treated in above mentioned manner. Apart fromit, herein, below way to treat operating lease is mentioned below such as:Eventually as the finance lease, the operating lease does not treated as recognition of an assets or liability in the balance sheets of lessee. The income and expenditure of operating lease is considered in the books of lessor or lessee at a uniform base. As per the international accounting standard 16, in the operating lease accounting, it is being assumed that the lessor has the leased assets and the lessee takes the assets for a particular fixed time period. So basically on the basis of this kind of ownership and way to use the assets, the accounting treatment of an operating lease by the lessee and lessor.Operating lease accounting by lessee- If an operating lease consists fixed rental increasing during the lease. In such condition, there are two ways to account for the altered payment which are follows:Scheduled increase- If there is scheduled increase in the rent on a straight line basis then some recognition systems can present the usage of operating assets (Shan, and Taylor, 2015).

Contingent rentals- If there is change in the lease payment which are based future events. (inflation, tax occurred etc.)Operating lease accounting by lessor- This must be account for lease in below mentioned way which is as follows:The leased property must be depreciate during its life.The direct cost of the lease should be deferred. (b) Explanation of ways in which leases should be accounted for financial statements of lessee.As accordance to the international accounting standard 16, herein some conditions in that leases must be accounted for financial statements of lessee which are as follows:- If lease contract allows to lessee to buy the same leased assets on a price that is below in compare to fair value of assets in further. -As well as in a condition in which term of lease is equal to 75% or more then to the 75% of the total life of the leased assets. -If present value of total payment of lease is more then the 90% of fair value of assets.Lease accounting by lessee and lessor:In general terms there are two kind of lease one is finance lease and second is operating lease (Flower, 2018). The finance lease can be defined as to buy an assets by external finance. As well as the operating lease is related to get an assets on rent. Accounting for finance lease by lessee- The finance lease is presented by lessee such as in various financial statements like:Balance sheet- In this both the leased assets and lease liability is recorded.Income statement- Under this the interest expenditure on the lease payable is recorded. As well as it is being calculated on the basis of lease payment at starting applying the interest rate in the lease. Cash flow statement- Interest of the payment of lease is being recorded as an operating cash out flow in the cash flow statement. Along with, the repayment is recorded as a

financing cash outflow. As well as the expenses of interest may be recorded as an operating or financing cash outflow.Accounting for operating lease by lessee- The operating lease is presented by lessee such as in various financial statements like:Balance sheet- The operating lease is not reported in the balance sheet.Income statement- It includes the rent of assets that is similar to the lease payment.Cash flow statement- Under it, the total payment of lease or rent is considered as operating cash outflow (Walton, 2012).Impact of lease accounting on the lessee’s financial statements- The variation of finance and operating lease effects the different types of elements of financial statements such as:Total income and cash flow remain equal in both leases.Assets, liabilities, earning before income and tax of various operations are more in the finance lease in compare to the operating lease.Accounting for finance lease by the lessor-Balance sheet- In this lease receivable is recorded. As well as value of the assets is minimized on the basis of book value of the leased assets.Income statement- In this the revenue from the interest is recorded. This is computed on the basis of received lease in the starting of the interest rate in the lease.Cash flow statement- The interest of the revenue of lease is included in the cash flow statement in the form of cash inflow. As well as the principle of the total payable amount is recorded as an investing cash inflow.Accounting for operating lease by the lessor-Balance sheet- In this the leased assets is recorded.Income statement- Under it, the interest revenue is recorded along with the depreciation.Cash flow statement- Total payment is considered as an operating cash inflow in the cash flow statement.Impact of the lease accounting on the lessor’s financial statements: The difference of finance andoperating lease effects the different types of elements of financial statements such as:

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