A Comprehensive Analysis of Disclosures for Finance Leases

This essay provides a detailed overview of the disclosure requirements for finance leases, focusing on the stipulations of IFRS and US GAAP. It highlights the importance of Accounting Standard No. 19 in setting accounting policies for lease transactions and disclosures in financial statements. The essay discusses how IFRS requires balance sheets to present financial lease obligations as debt and emphasizes the necessity of providing detailed notes that break down debt components, including financial lease obligations. It further examines the lessor's disclosures, including the reconciliation of gross investments and the present value of minimum lease payments, while also addressing unguaranteed residual values and contingent rent recognition. The essay also covers operational leases, focusing on disclosures related to commitments for operating lease contracts and the classification of liabilities as current and non-current. The analysis concludes by emphasizing the reconciliation of future minimum lease payments and the importance of disclosing details related to contingent rent and lease restrictions. Desklib offers a platform for students to access similar solved assignments and past papers.

Disclosures for finance leases
Essay

Introduction
The lease is defined as an arrangement where the lessor tend to convey to the lessee in
return for a payment or where there is a series of payment that is set for using an asset for a
particular time. The agreement of the lease is done by the arrangement of the lessor and lessee
where the lessor transfer the right to use an asset to the lessee against the payment for the lease
rental. The cases are mentioned for the agreement which is done mainly when there are certain
terms and conditions of the lease. The lessee has the right to properly acquire the ownership for
the asset which is found to be leased at the end of the lease period (Altamuro, Johnston, Pandit &
Zhang, 2014). The hiring of the purchase arrangement is important where the Accounting
Standard No. 19 is promulgated in providing certain accounting policies which needs to be
followed with lease transactions and the other disclosures which are made for the financial
statements. IFRS and US GAAP tend to stipulate the appropriate disclosures which are made in
relation to the other operating and the financial leases. There are disclosure requirements which
are dissimilar. Hence, for the finance leases, IFRS need to work on the balance sheets which are
presenting the financial lease obligations that are for the in-line items that are labelled as debt.
Discussion
IFRS requires holding on the disclosures which are for the notes and the layouts and are
directed to handle different companies. The notes help in providing the information related to the
breakdown of the debt that has been reported for the balance sheet into the components named:
the amount of debt which excludes the financial lease obligations and there are amount of the
financial lease obligations (Campbell et al., 2014). There are disclosures for the components set
for the balance sheet debt and this excludes any type of the financial lease obligations as well.
The information is then set for the company obligations which are for the financial and the
operating system leases that includes the future and the present values of the minimum financial
lease payments.
It has been seen that for the lessor, the disclosures of the finance lease in financial
statements claim about the reconciliation of the bringing of the gross investments and the Present
value of MLP which is important for analyzing the unearned financial income. Apart from this,
there are certain unguaranteed residual values which are found to be assimilated with the
provisions for the unearned MLP receivables (Lim, Mann & Mihov, 2014). There is a

contingency of the rent that is recognized where the general descriptions are based on handling
the significant leasing arrangements. The accounting policies are set for the initial direct costs.
The disclosures for the finance lease also includes the segregation of the lease assets from the
owned assets. Here, there is a net carrying amount for the balance sheets where the due date for
the class of assets is based on the reconciliation of the borough and forwarded MLP at the
Balance sheet which is due to the different classes of the assets. The reconciliation of the brought
forward MLP is at the Balance Sheet date and the present value. There is a contingent rent that is
recognized, and the future of the minimized sub-lease payments is yet to be received till it is
under the non-cancellable sub-lease. There are certain descriptions which are made for the
leasing agreements where there are depreciation set according to the AS 6 and there are certain
fixed assets that are revealed according to AS 10 (Lubbe, Modack & Watson, 2014).
Considering the operational leases, there are disclosures which will help in providing the
information related to the commitments for the operating lease contracts. There are factors which
are related to handle the current liability where the amount is of the principle repayable in the
next 12 months and there is an interest which is accrued and not yet paid at the end of the
reporting period. The non-current liability will be holding the remaining principal balance which
will be paid in for a period which is more than 12 months. The financial lease disclosures are
also for the liabilities which are set in between the current liability and the non-current liabilities.
The current is about the amount of the principal payable in the time of next 12 months with the
interests. The non-current is about the amount of the principal which is in the period that is more
than 12 months. The disclosures are for the requirements of IAS 16 with Property, Plant and
Equipment which is applied to leased assets and as they are treated for the tangible non-current
assets in the financial statements (Muller, Riedl & Sellhorn, 2015). IAS 17 is also for the
disclosures that are for the financial statements of lessee which is for the different class of assets
and there is a need amount to be carried which is held under the financial lease at the end of
reporting for a particular time period.
Conclusion
The reconciliation is of the total future minimum lease payments at the end of the
reporting period. There are present values which are set with future minimum lease payments as
well that are divided into the amounts that tend to fall due in the time of 1 year, later than 1 year

and later than 5 years (Spencer, and Webb, 2015). The general description of the lessee material
leasing arrangements also include details related to the contingent rent payable where the
purchase is for escalating the clauses as well as holding the lease restrictions like the dividends,
debt and the other restrictions as well. The contingent rents are recognized in the period where
the amount is found to be above the minimum lease payments and are not considered to be fixed.
References
Altamuro, J., Johnston, R., Pandit, S. and Zhang, H., 2014. Operating leases and credit
assessments. Contemporary Accounting Research, 31(2), pp.551-580.
Campbell, J.L., Chen, H., Dhaliwal, D.S., Lu, H.M. and Steele, L.B., 2014. The information
content of mandatory risk factor disclosures in corporate filings. Review of Accounting
Studies, 19(1), pp.396-455.
Lim, S., Mann, S. and Mihov, V., 2014. Market Recognition of the Accounting Disclosure and
Economic Benefits of Operating Leases: Evidence from Borrowing Costs and Credit Ratings.
Lubbe, I., Modack, G. and Watson, A., 2014. Financial accounting GAAP principles. OUP
Catalogue.
Müller, M.A., Riedl, E.J. and Sellhorn, T., 2015. Recognition versus disclosure of fair
values. The Accounting Review, 90(6), pp.2411-2447.
Spencer, A.W. and Webb, T.Z., 2015. Leases: A review of contemporary academic literature
relating to lessees. Accounting Horizons, 29(4), pp.997-1023.