International Financial Reporting Standards Report

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International Financial Reporting
1

Contents
Introduction.................................................................................................................................................3
Part 1...........................................................................................................................................................4
a...............................................................................................................................................................4
b...............................................................................................................................................................5
c...............................................................................................................................................................6
Part 2.........................................................................................................................................................12
a.............................................................................................................................................................12
b.............................................................................................................................................................13
Part 3.........................................................................................................................................................16
a.............................................................................................................................................................16
b.............................................................................................................................................................17
Conclusion.................................................................................................................................................20
References.................................................................................................................................................21
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Introduction
The overall assignment is divided into three parts and each part is different from each other. In
the first part discuss the accounting standard like IFRS 16 for lease. In this part, the calculation is
made in order to calculate the implicit rate for the lease and discuss the meaning of this term. In
the second part, provide journal entries for the transactions and also calculate the cost by
following the IAS 16. This is because it helps in providing the company at what cost the machine
(assets) is to be purchased. In the last part of this assignment IAS 2 refer for inventories is being
discussed and find at what cost closing inventory is to be presented by the company because
there is a various factor which suggests a different method for calculating closing stock but IAS
2 provides a proper guiltiness which is followed in this part.
3

Part 1
a.
IFRS defines a lease as a contract or a part of a contract that signifies the right of a lessee, to use
an asset for a brief or specific period of time in exchange for consideration of money (Ball,
2016).
IFRS 16 has changed the definition of lease as it was under IAS 17 and has guided on how this
new definition is executed. Under the new contract, the asset which is on lease has to be
identified. It does not change its accounting methods for the services provided.
It focuses on the aspect when a lease is similar to the asset if it is purchased in economic terms.
When the lease is economically determined to be similar to purchasing the asset, the lease is then
classified as a finance lease and it is reported in the balance sheet of the company.
All other leases whose value is economically considered less, are categorized as operating leases
and these are not reported in the company’s balance sheet.
IFRS 16 required Lease Accounting Treatment:
 Recognizes the lease assets and liabilities in the balance sheet that was earlier measured
at the present value of unavoidable payments of a lease in the future.
 Identify the depreciated which is being charged with lease assets and interest over lease
liabilities in the income statement.
 Segregate the amount of cash that is paid into different portions and interest which is
reflecting in the cash flow statement.
4

b.
As per the provisions of IFRS 16 lessees do not have to classify the lease at the point of its
inception and also determine whether the lease is operating or finance. IFRS has proposed a
single method of reporting for every lease which is being given to the lessees (Buchman, et.al.,
2016).
Lessee needs to know a right-of-use asset and figure out liability in its financial statements. The
asset will be depreciated and liability will be amortized during the lease period.
There are two certain exceptions which are made in the IFRS 16 new rule:
 The lease of assets will be considered for the short term, which is less than a year.
 Lease of assets that are very less in value.
Under the financial statements, there are certain changes that are accounted for in the financial
statements of the lessee.
 The lease liability is calculated at present value of lease payments over the lease term.
The entry for the same stands as:
Right of use of asset will be debited
Lease Liability will be credited.
 When the payment is made at the end of the accounting period, it is needed to identify the
depreciation charged over the right of use asset over the lease term and,
Recognize to re-measure the liability of lease to include interest charged, remove the
amounts paid and consider the modifications made into the lease into the account.
5

c.
Calculation of Interest
Rate:
Quarters
Amoun
t
0
(28,050
)
1 1,950
2 1,950
3 1,950
4 1,950
5 1,950
6 1,950
7 1,950
8 1,950
9 1,950
10 1,950
11 1,950
12 1,950
13 1,950
14 1,950
15 1,950
16 1,950
17 1,950
18 1,950
19 1,950
Interest Rate 2.95%
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Lease Schedule:
Quarter
Amoun
t Interest Installment
Amount
Repayment
Balanc
e
0 30,000 - 1,950 1,950 28,050
1 28,050 828 1,950 1,122 26,928
2 26,928 795 1,950 1,155 25,773
3 25,773 761 1,950 1,189 24,584
4 24,584 726 1,950 1,224 23,360
5 23,360 690 1,950 1,260 22,099
6 22,099 652 1,950 1,298 20,802
7 20,802 614 1,950 1,336 19,466
8 19,466 575 1,950 1,375 18,090
9 18,090 534 1,950 1,416 16,675
10 16,675 492 1,950 1,458 15,217
11 15,217 449 1,950 1,501 13,716
12 13,716 405 1,950 1,545 12,171
13 12,171 359 1,950 1,591 10,580
14 10,580 312 1,950 1,638 8,943
15 8,943 264 1,950 1,686 7,257
16 7,257 214 1,950 1,736 5,521
17 5,521 163 1,950 1,787 3,734
18 3,734 110 1,950 1,840 1,894
19 1,894 56 1,950 1,894 (0)
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Journal Entries in the book of RoyJoy Ltd.
Date particulars
L.F
.
Amount(Dr.
)
Amount
(Cr.)
1/1/2019 Lease Receivable a/c Dr. £ 30,000
To Asset a/c
£
30,000
(Being freehold property
purchased)
1/1/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,950
(Being installment received)
31/3/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,122
To Finance Income a/c
£
828
(Being installment received)
30/6/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,155
To Finance Income a/c
£
795
(Being installment received)
30/9/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,189
To Finance Income a/c
£
761
(Being installment received)
31/12/201
9 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,224
To Finance Income a/c
£
726
(Being installment received)
8

31/3/2020 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,260
To Finance Income a/c
£
690
(Being installment received)
30/6/2020 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,298
To Finance Income a/c
£
652
(Being installment received)
30/9/2020 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,336
To Finance Income a/c
£
614
(Being installment received)
31/12/202
0 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,375
To Finance Income a/c
£
575
(Being installment received)
31/3/2021 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,416
To Finance Income a/c
£
534
(Being installment received)
30/6/2021 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,458
To Finance Income a/c
£
492
(Being installment received)
9

30/9/2021 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,501
To Finance Income a/c
£
449
(Being installment received)
31/12/202
1 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,545
To Finance Income a/c
£
405
(Being installment received)
31/3/2022 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,591
To Finance Income a/c
£
359
(Being installment received)
30/6/2022 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,638
To Finance Income a/c
£
312
(Being installment received)
30/9/2022 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,686
To Finance Income a/c
£
264
(Being installment received)
31/12/202
2 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,736
To Finance Income a/c
£
214
(Being installment received)
10

31/3/2023 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,787
To Finance Income a/c
£
163
(Being installment received)
30/6/2023 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,840
To Finance Income a/c
£
110
(Being installment received)
30/9/2023 Bank a/c Dr. £ 1,950
To Lease Receivable a/c
£
1,894
To Finance Income a/c
£
56
(Being installment received)
31/12/202
3 Bank a/c Dr. £ 800
To Rental Income a/c**
£
800
(Being rental income recieved)
31/3/2024 Bank a/c Dr. £ 800
To Rental Income a/c
£
800
(Being installment received)
30/6/2024 Bank a/c Dr. £ 800
To Rental Income a/c
£
800
(Being installment received)
30/9/2024 Bank a/c Dr. £ 800
To Rental Income a/c
£
800
(Being installment received)
31/12/202 Bank a/c Dr. £ 800
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4
To Rental Income a/c
£
800
(Being installment received)
31/3/2025 Bank a/c Dr. £ 800
To Rental Income a/c
£
800
(Being installment received)
30/6/2025 Bank a/c Dr. £ 800
To Rental Income a/c
£
800
(Being installment received)
30/9/2025 Bank a/c Dr. £ 800
To Rental Income a/c
£
800
(Being installment received)
**For further period of 2 years, rental income has been taken at £800 per quarter.
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