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(solved) Advance Financial Accounting Report
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UNIVERSITY OF PORTSMOUTH
Added on 2020-04-21
(solved) Advance Financial Accounting Report
UNIVERSITY OF PORTSMOUTH
Added on 2020-04-21
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Running Head: ADVANCED FINANCIAL ACCOUNTINGIFRS 16The new lease standard
Advance Financial Accounting1ContentsIntroduction...........................................................................................................................................2IFRS 16 and its Requirements...............................................................................................................2Lessee................................................................................................................................................2Lessor................................................................................................................................................3Changes in accounting environment......................................................................................................3Lessee Accounting.............................................................................................................................3Lessor accounting..............................................................................................................................4Effects on financial statements..............................................................................................................4Effects on Great Eastern Holdings Ltd..................................................................................................5Conclusion.............................................................................................................................................6References.............................................................................................................................................7
Advance Financial Accounting2IntroductionIFRS 16 is an International Financial Reporting Standard, developed by IASB (International Accounting Standard Board). This standard provide the guidelines for the lease accounting. The main motive of the standard is to report that data which shows the accurate information about the lease transactions ("IFRS", 2017). It introduces a single lessee accounting model and requires that all the leases should be reported on the balance sheet and the lessee has to recognize all the assets and liabilities for almost all leases with a period of more than 12 months. Once applicable, it will replace IAS 17 ("IFRS 16 — Leases", 2017).Great Eastern Holdings Ltd. was founded in 1908, is a life insurance group in Singapore and Malaysia. It is the oldest insurance company in Asia listed on Singapore Exchange. It provides services like banking, insurance and asset management. The mission of the company is to provide financial security to its clients ("Great Eastern", 2017). This report is about the requirements of the new lease standard for the lessee and lessor. It also explains the effects of IFRS 16 on the Great Eastern Ltd.IFRS 16 and its RequirementsThe new standard for lease was published by IASB in January 2016 and will come in effect from January 1, 2019. It defines the principles for the measurement and disclosure of the leases. The companies who have applied for IFRS 15 Revenue from Contracts with Customers can choose to apply for IFRS 16 before its effective date. The main objective of IASB to introduce this new standard, is to improve the financial reporting of lease. Under IFRS 16, a leases is defined as a contract that provides right to the customer (“lessee”) to use an asset for a particular period of time in exchange of some consideration. The requirements of the definition of lease has also changed from those in IAS 17. The new standard brings a significant change in the approach and will effect several industries. The enterprises which will be mainly affected by IFRS 16 are retail and consumer, telecommunications, banking and financial institutions, metals and mining, oil and gas and insurance entities. Once the new standard became effective, it will replace the old standard of lease that is IAS 17. It will eliminate the classification of leases as financial lease and operating lease and all of them are treated in a similar way ("IFRS 16 Leases | Deloitte UK", 2017).Lessee As the new standard provide a single lessee accounting model, the lessee is required to:Recognize assets and liabilities of most of the leases with a time period of more than 12 months. The exemption is provided for assets having low value.Separation of the depreciation charged on lease assets from the interest on lease liabilities. Previously, according to the IAS 17, the focus was mainly on identifying the finance lease that is required to be reported in the balance sheet. The lease which is economically similar to the purchasing of a leased asset is considered to be finance lease. All the other leases were termed as operating leases and were not required to be shown on balance sheet. They were known as off balance sheet leases. Now, as per IFRS 16, lessees are require to report all the leases on their balance sheet, irrespective of the industry in which the entity works. The whole accounting treatment of leases done by lessees will change fundamentally. It will completely remove the current dual accounting model which distinguishes between the on balance sheet leases and off balance sheet leases.
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