This article discusses finance lease, disclosure of lease for lessees and lessors, and impairment loss in corporate accounting. It also provides a journal entry for Gali Limited. The subject is finance and accounting, and the course code and college/university are not mentioned.
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Running head: CORPORATE ACCOUNTING Corporate Accounting Name of the Student: Name of the University: Author Note:
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1CORPORATE ACCOUNTING Table of Contents Part A.........................................................................................................................................2 Part B.........................................................................................................................................5 Reference:................................................................................................................................7
2CORPORATE ACCOUNTING Part A Under finance lease risk as well as reward of ownership in a considerable way is being transferred. The lease those are not classified under financial lease are termed as operating lease. The tenure of a lease is the least phase of time for that the lessee has entered into an agreement for leasing the asset in addition to that the agreement the extension of period for lease accordingly by inspecting the lease. The lease payment is done on the contractual basis. It does not include facilities cost, rents that contingent in nature and taxes. In case of lessee the sum that is finalised by the lessee or the party those are related with leasealong with the price for exercising any option in place where exercisingis rationally convinced at inception. The lessor would pay on the guaranteed salvage cost. The gross investment in lease is about the least payment of lease inclusive of any outstanding value that does not have guarantee. The net investment in case of lease is the current price of the speculation in the lease at what time reduced at the interest rate implied in the lease (Hossain 2013). As per AASB 16 states the disclosure of the lease for lessees.it states that the lessee shall disclose all the information in the notes to account that is presented in the financial statement. The user can get the idea of the effects of lease that it has on the financial from the components of financial statement such as cash flow statement, or profit or loss that is being used by the lessee. In the para of 52 to 60 of AASB 16 specifically discuss the needs of meeting the objective of lessee regarding disclosure of a lease. The para states that the information about the lease shall be given as a separate note in the notes to account section of the statement. The information should not be duplicate and shall be recorded in cross reference note (Hossain 2013).
3CORPORATE ACCOUNTING A lessee recording the disclosure about the lease for the particular period shall also record the depreciation of the asset as well as the interest expenditure incurred on the liability in case of lease. The expense with the lease term of less than one month for short-term leases. Even the expenditure relating to variable lease payment that is not inclusive of lease liability. The income that is been incurred by subleasing of right for using the asset. The profit as well as loss also to be recorded in case of lease back deal. The carrying value shall be recorded according to the class of asset. These information shall be in table format until and unless another format is been provided. The sum revealed intend to comprise charges that a lessee has counted in the carrying value of a different asset throughout the reporting date (Wong and Joshi 2015). A lessee will reveal the sum of its lease promises for temporary leases accounted if the selection of temporary leases to that it is dedicated at the conclusion of the reporting date is unlike to the range of temporary leases to that the temporary lease expenditure aredisclosed. With the help of AASB a lessee shall also disclose about the maturity of lease liability. To meet the objective of disclosing the lessee shall disclose all the matter regarding lease that may be qualitative as well as quantitative. A lessor shall reveal the subsequent sum for the reporting period in case of finance lease: I)Income or loss by selling II)Monetary earnings on the net speculation in the lease; III)Revenue concerned about the flexible lease outflows not comprised at the time of measuring net investment in the lease.
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4CORPORATE ACCOUNTING A lessor will be responsible for the confessions those are specified above in a table presentation, except alternative format is appropriate than the first one. A lessor intend to disclose added qualitative as well as quantitative material related to its leasing actions essential to meet the requirement ofdisclosure objective. This addedfactscomprises,butisnotrestrictedto,factsthatassistoperatorsof monetary statements to evaluate: the character of the lessor’s renting deeds; and how the lessor accomplishes the risk related with every rights it preserves in original assets. In specific case, a lessor intend to reveal its threat management policy for the privileges it preserves in fundamental properties, counting any incomes by that the lessor decreases the risk. Such incomes might comprise, for instance, buy-back contracts, outstanding value assurances or flexible lease expenditures for usage in surplus of quantified limits. On the completion of bookkeeping year, the component of liability of a business is connected to the commitments in reverence to lease. The responsibility on the sideways of finance lease is comprehensive of assets balance that is actually added to accumulated interest that are not been compensated. Underneath recent liability the main amount and the accumulated interest that is not remunerated will be documented. The amount that is to be paid in the upcoming time is shown in the non-current liability column. The asset would not be recorded as PPE because the risk would be passed to the lessee while ownership is being transferred. In this situation lessor record the finance lease as receivable. The fair value of the asset is recorded as the net investment in lease.During the process of the lease period, the hire charge of the lessor would comprise of primary reimbursement and either interest or investment proceeds on the unsettled principal amount. The principal
5CORPORATE ACCOUNTING settlement would lead to reduction in the entire principal sum that is so far to be accepted from the lessee (Aasb.gov.au. 2019)
6CORPORATE ACCOUNTING Part B In the books of Gali Limited Journal Entry as on 30 June 2015 Date DebitCredit ParticularsAmount (in $)Amount (in $) 30-Jun- 15Impairment Loss Account57,000 Goodwill Account19,000 Land Account13,812.00 Brand Account12,761.77 Fittings Account8,013.20 Inventory Account3,413.03 (Net assets and goodwill impaired) 30-Jun- 15Income Statement Account57,000 Impairment Loss Account57,000 ( Value of impairment loss reflected to the income statement) Workings: ParticularsAmount (in $) Assets' carrying amount (A)5,54,700 Value-in-use of the division (B)4,97,700 Actual or real asset values (D)4,97,700 Loss from Impairment (E) (A) - (D)]57,000 Goodwill19,000 Impairment loss from subtraction of goodwill (E) - (F)38,000 Carrying Value of Land3,72,700 Less: Fair Value of Land3,58,888 Impairment Loss on land (G)13,812 Impairment Loss from Subtraction of goodwill & Land (E) - (F) -(G)24,188
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7CORPORATE ACCOUNTING ParticularsCarrying amount (in $)Pro-rataImpairment Loss Allocated (in $)Adjusted Carrying Amount (in $) Goodwill19,00019,000 Land3,72,700.0013,812.007,86,148.00 Brand86,000.0053%12,761.7773,238.23 Fittings54,000.0033%8,013.2045,986.80 Inventory23,000.0014%3,413.0319,586.97 Total1,63,000100%57,0009,24,960 Apportionment of Impairment Loss:-
8CORPORATE ACCOUNTING Reference: Aasb.gov.au.,2019.[online]Availableat: http://www.aasb.gov.au/admin/file/content105/c9/AASB117_08-15.pdf [Accessed 27 January 2019]. Bhattacharyya, S.C., 2013. Financing energy access and off-grid electrification: A reviewofstatus,optionsandchallenges.RenewableandSustainableEnergy Reviews,20, pp.462-472. Bohušová,H.,2015.IsCapitalizationofOperatingLeaseWaytoIncreaseof Comparability of Financial Statements Prepared in Accordance with IFRS and US GAAP?.ActaUniversitatisAgriculturaeetSilviculturaeMendelianae Brunensis,63(2), pp.507-514. Hossain, M.M., 2013. Leasing: An Alternative Financing Mechanism for SMEs.ABC Journal Of Advanced Research,2(1), pp.66-82. Wong, K. and Joshi, M., 2015. The impact of lease capitalisationon financial statementsandkeyratios:EvidencefromAustralia.AustralasianAccounting, Business and Finance Journal,9(3), pp.27-44. Www2.deloitte.com.(2019).[online]Availableat: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/audit/deloitte-au- audit-aasb-16-guide-220916.pdf [Accessed 26 Jan. 2019].