Finance Leases: Disclosures, AASB 16 and Journal Entries - Gali Ltd

This report provides a comprehensive overview of disclosures for finance leases, referencing AASB 16 standards for lessees and lessors. It details the required disclosures in financial statements, including depreciation, interest expenditure, and lease liabilities. The report further includes a practical application in the form of journal entries for Gali Ltd, demonstrating the accounting treatment for impairment losses and asset revaluations. The analysis covers the calculation of impairment losses on various assets such as goodwill, land, brands, fittings, and inventory, providing a clear understanding of how to record these adjustments in the financial statements.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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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 lease along with the price for
exercising any option in place where exercising is 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).

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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 are disclosed. 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.

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 of disclosure objective. This
added facts comprises, but is not restricted to, facts that assist operators of
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
Debit Credit
Particulars Amount (in $) Amount (in $)
30-Jun-
15 Impairment Loss Account 57,000
Goodwill Account 19,000
Land Account 13,812.00
Brand Account 12,761.77
Fittings Account 8,013.20
Inventory Account 3,413.03
(Net assets and goodwill impaired)
30-Jun-
15 Income Statement Account 57,000
Impairment Loss Account 57,000
( Value of impairment loss reflected to
the income statement)
Workings:
Particulars Amount (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
Goodwill 19,000
Impairment loss from subtraction
of goodwill (E) - (F) 38,000
Carrying Value of Land 3,72,700
Less: Fair Value of Land 3,58,888
Impairment Loss on land (G) 13,812
Impairment Loss from Subtraction
of goodwill & Land (E) - (F) -(G) 24,188

7CORPORATE ACCOUNTING
Particulars Carrying amount (in $) Pro-rata Impairment Loss Allocated (in $) Adjusted Carrying Amount (in $)
Goodwill 19,000 19,000
Land 3,72,700.00 13,812.00 7,86,148.00
Brand 86,000.00 53% 12,761.77 73,238.23
Fittings 54,000.00 33% 8,013.20 45,986.80
Inventory 23,000.00 14% 3,413.03 19,586.97
Total 1,63,000 100% 57,000 9,24,960
Apportionment of Impairment Loss:-

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Reference:
Aasb.gov.au., 2019. [online] Available at:
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
review of status, options and challenges. Renewable and Sustainable Energy
Reviews, 20, pp.462-472.
Bohušová, H., 2015. Is Capitalization of Operating Lease Way to Increase of
Comparability of Financial Statements Prepared in Accordance with IFRS and US
GAAP?. Acta Universitatis Agriculturae et Silviculturae Mendelianae
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 capitalisation on financial
statements and key ratios: Evidence from Australia. Australasian Accounting,
Business and Finance Journal, 9(3), pp.27-44.
Www2.deloitte.com. (2019). [online] Available at:
https://www2.deloitte.com/content/dam/Deloitte/au/Documents/audit/deloitte-au-
audit-aasb-16-guide-220916.pdf [Accessed 26 Jan. 2019].