MAA363 | Corporate Accounting Assignment

Department of Accounting
MAA363 CORPORATE ACCOUNTING
ASSIGNMENT - Trimester 3, 2019
Question ONE Proforma
Family name: First names:
Deakin ID
Deakin Username:
SPECIAL INSTRUCTIONS:
 The DUE DATE for submission of this question is Tuesday 17 December,
2019 before 11.59 pm (AEST).
 Question (Part A, Part B and Part C) must be completed and submitted on
this proforma.
 Please ensure that you understand the University rules on plagiarism – it must
be your own work.
 Include your answer in sections provided but include WORKINGS on the
LAST PAGES.
 You can create more lines on the lease schedule and journal entry tables etc.
by placing the cursor at the end of the last row and pressing TAB.
 Insert your name and student ID in the footer.
 You are not required to submit a hard copy.

Written Assignment - Question 1 (Proforma) MAA363 Corporate
Accounting
PART A:
1) Why would the carrying amount of a lease asset typically reduce more
quickly than the carrying amount of a lease liability?
Answer:
Carrying amount of lease liability is the present value of periodic lease rentals
and other obligations that needs to be paid to the lessor throughout the term of the
lease. On the other hand, the present value of the lease rental plus any other expenses
minus lease revenues or incentives are recognised as the lease asset. Lease assets are
generally written off as per the periodic depreciation expenses, while the lease liability is
written off on the basis of payment of lease rentals (Hoyle, Schaefer and Doupnik 2015).
Each of the lease rentals is segregated into two parts, one is the interest expense
and the other is the principal payment. The lease liability is reduced by the amount of
principle payments. Initially, the interest expenses becomes higher and the principle
payment remains comparatively lower. Hence, initially, the lease liability is written off
slowly while the lease assets is written off quickly as compared to the lease liability
(Hoyle, Schaefer and Doupnik 2015).
Insert name and ID here 2

Written Assignment - Question 1 (Proforma) MAA363 Corporate
Accounting
2) How do you think that the management of reporting entities will
respond to the new requirements for leases? Do you think it will affect
how or whether they lease assets, and if so, why?
Answer:
The new requirement of lease accounting requires the company to recognise the
lease liability as well as the lease assets in the books of accounts initially. The present
value of all the lease obligations are recognised and recorded as the lease liability and
the value of lease liability plus any other lease obligation as reduced by any lease
incentives are recognised and recorded as the lease assets (Pacter 2014).
The new accounting standard requires to write off the lease liability with the
amount of principle lease repayment. The periodic lease rentals are segregated into
interest expense and principle repayment as based on the implicit interest rate. The
difference between the periodic lease rentals and the respective interest expenses is
considered as the principle repayment and reduced from the lease liability. On the other
hand, the lease assets is also written off based on the periodic depreciation expense as
per the assets class (Yu and Wahid 2014).
Therefore, the new accounting requirements is more transparent and gives a
complete and accurate picture of the lease liability and lease assets at a given point of
time from the perspective of the lessee. Though, the new requirements are quite a
complex in nature and requires various changes in the current accounting process and
method of lease accounting, managers should accept and adopt in the business to
achieve more transparent and effective financial reporting (Yu and Wahid 2014).
Insert name and ID here 3