(solved) Advance Financial Accounting Report

Added on - 21 Apr 2020

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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 (InternationalAccounting Standard Board). This standard provide the guidelines for the lease accounting. Themain motive of the standard is to report that data which shows the accurate information about thelease transactions("IFRS", 2017).It introduces a single lessee accounting model and requires thatall the leases should be reported on the balance sheet and the lessee has to recognize all the assetsand liabilities for almost all leases with a period of more than 12 months. Once applicable, it willreplace IAS 17("IFRS 16 — Leases", 2017).Great Eastern Holdings Ltd. was founded in 1908, is a life insurance group in Singapore andMalaysia. It is the oldest insurance company in Asia listed on Singapore Exchange. It providesservices like banking, insurance and asset management. The mission of the company is to providefinancial security to its clients("Great Eastern", 2017).This report is about the requirements of thenew lease standard for the lessee and lessor. It also explains the effects of IFRS 16 on the GreatEastern Ltd.IFRS 16 and its RequirementsThe new standard for lease was published by IASB in January 2016 and will come in effect fromJanuary 1, 2019. It defines the principles for the measurement and disclosure of the leases. Thecompanies who have applied for IFRS 15 Revenue from Contracts with Customers can choose toapply for IFRS 16 before its effective date. The main objective of IASB to introduce this newstandard, is to improve the financial reporting of lease. Under IFRS 16, a leases is defined as acontract that provides right to the customer (“lessee”) to use an asset for a particular period of timein exchange of some consideration. The requirements of the definition of lease has also changedfrom those in IAS 17. The new standard brings a significant change in the approach and will effectseveral industries. The enterprises which will be mainly affected by IFRS 16 are retail andconsumer, telecommunications, banking and financial institutions, metals and mining, oil and gasand insurance entities. Once the new standard became effective, it will replace the old standard oflease that is IAS 17. It will eliminate the classification of leases as financial lease and operatinglease and all of them are treated in a similar way("IFRS 16 Leases | Deloitte UK", 2017).LesseeAs 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 12months. 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 isrequired to be reported in the balance sheet. The lease which is economically similar to thepurchasing of a leased asset is considered to be finance lease. All the other leases were termed asoperating leases and were not required to be shown on balance sheet. They were known as offbalance sheet leases. Now, as per IFRS 16, lessees are require to report all the leases on theirbalance sheet, irrespective of the industry in which the entity works. The whole accountingtreatment of leases done by lessees will change fundamentally. It will completely remove thecurrent dual accounting model which distinguishes between the on balance sheet leases and offbalance sheet leases.
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