University Financial Reporting: Lease Accounting Analysis and Report

This financial reporting assignment delves into the intricacies of lease accounting, focusing on the distinctions between finance and operating leases as defined by AASB 16. The report begins by defining leases and outlining the recognition criteria for both lessors and lessees, according to the standard. It then differentiates between finance and operating leases, highlighting ownership transfer, asset treatment, and lease term differences. The core of the assignment involves analyzing the annual report of CGF CHALLENGER LIMITED, identifying examples of both operating and finance leases within the financial statements, and providing specific page references to support the findings. Furthermore, the report discusses the implications of the new AASB 16 on financial reporting, emphasizing the expected changes in financial metrics and the operational challenges of implementation, along with the costs, time, and effort needed to implement the changes. The report concludes by emphasizing the need for detailed analysis and informed decision-making regarding lease agreements in light of the new standard.

Running head: FINANCIAL REPORTING
Financial Reporting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Part A:........................................................................................................................................2
1:.................................................................................................................................................2
2:.................................................................................................................................................3
3:.................................................................................................................................................3
Part B:.........................................................................................................................................4
Reference....................................................................................................................................6
Appendix....................................................................................................................................7

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Part A:
1:
The AASB 16provides the meaning of the lease it states the Lease refers to an
agreement between two parties. In this agreement one party offers service, property, land, etc
to the other party for a definitive in exchange of timely compensation (Xuet al. 2017).
The recognition criterions for lease as per AASB are:
As per Para 9of AASB 16, at the beginning of an agreement, an entity must evaluate
whether the agreement is or encompasses a lease. A contract is composed of a lease if the
contract expresses the right to regulate the utilization of a detected asset for a time in barter
for a consideration.
ThePara 22 of the AASB 16, further provides that on initiation date, a lessee should
identify an assets right of usage and a legal responsibility of a lease.
As per Para 67of the AASB, at initiation date, a lessor must identify assets held as per
the lease of finance in this statement of monetary condition and showcase them at a sum
equivalent to the investment in lease as receivable (Holland 2016).
ThePara 81of the AASB 16, provides that a lessor should identify lease
compensations from the leases relating to operations as revenue is on either systematic basis
or a straight-line basis. The lessor must implement another systematic basis if that foundation
is extra representative of model in that the gains from the utilization of the core asset were
reduced (AASB 2015).

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2:
The difference between Finance and operating lease are:
 In financing lease, the option for thetransfer of ownership is with the lease at the end
of the period.However it should be noted that eventually title may or may not be
transferred. In case of Operating lease, the lessor has the ownership of the assets for
the entire time.
 Financial lease is tackled as a loan in usual cases. The possessionof the asset is with
the lessee and therefore the asset displayed or shown in balance sheet. On the other
hand, the operating lease is treated as a renting in usual sense. In this case the cost
associated with the lease compensation are treated as costs relating to operation.
Therefore it is not shown in the balance sheet as an assets (Bohusova and Svoboda
2017).
 The term of lease in case of finance lease is usually equivalent to approximate cost
effective life of the leased asset. The term of lease in case operating lease is
extendable less than seventy-five percent of the anticipated life of the asset that is
leased.
3:
In this section, the Annual report of the CGF CHALLENGER LIMITEDis analysed
in order to identifythe examples of the operating lease and the finance lease.Thepage 46 of
Annual Report states about accounting standards that deals with the lease accounting. The
standards make distinction between the finance and operating lease (Steenkampet al. 2016).
Lessees are obligated to get every lease on statement of financial position. In accordance with
AASB 101 presentation of financial statement the lease amount is being highlighted in the

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statement of financial position. In page 43 of the Annual Report in the statement of financial
position was highlighting as on 30th June of 2015 and 2016, finance lease was displaying $
40.4 Million and $ 57.8 Million respectively. This means the debt has increased on 2016 as
comparing to 2015.
In page 49 of Annual Report states about the revenue from the operating lease for a
period of the legal agreement on straight-line basis. As per page 50 of Annual Report
declares about the operating lease that is done with aid of straight-line system for a fixed time
of the lease (AASB 2014). The example of an operating lease in the annual report is therental
expenses. The sum enhances the situation of the venture are capitalised interested in
executing the worth of the possessions. Thepage 91 of Annual Report declares about the
Operating Lease at cost on 30th June 2015 was $ 22.8 Million. At the completion of the year
of 2015 was $ 13.3 Million.
Part B:
The page 46 of Annual Report, a new AASB 16 declares about leases that the
accounting standards modify the leasing system of account. The new AASB 16 is not
effective but it is expected that the financial result will have certain effects with the change in
the accounting standard. The AASB 16 is expected to be effective from 2019. The new
leasing accounting standard will need the corporate to carry the most of the operating leases
in the balance sheet. The change is likely to affect the financial matrices and ratios such as
the earning per share and the return on equity. However, the recent changes will not affect tje
In the current example under new system the carrying amount of the both the finance and
operating lease should be highlighted (Careyet al. 2014). The possessions and tools are
included in the operating leases in past known as off balance sheet. The lease liability and

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lease asset that brings additional transparency concerning the lease pledge of the corporate
and alteration of crucial monetary metrics for instance EBITDA, asset turnover and gearing
ratio. The accounting of Lessor will be mostly unaffected from the present standards of
leasing as per AASB 117.
The execution of the new standard on leasing is anticipated to cause a operational
challenges and financial challenges outside the reporting of finance. The entire structure,
system, procedures and regulations will be altered to assure about its accuracy and
completion of the data associated to leasing and decisions yet the corporate would have
mandatorily required evaluating and administering the influences to impairment evaluation,
credit ratings, accounting related to effects of tax and leasing tactics (Day 2016). The
corporate must not underrate the cost, effort and time necessitated for execution of these
modifications as given under the new AASB 16. There are certain cost, time and effort that
are needed in the implementation of the standard. The efforts that are involved in the
implementation of the standard should not be neglected.
The majority of the entire leases may be shown in the income statement and balance
sheet will be influenced by this. The detailed analysis is necessary at present to create
educated choices about the agreement on leases, facilities regarding loan and communication
with shareholders. The new AASB 16 is a standard that will influence every pre-existing
lease, therefore retailers are necessitated to take this influences on every existing leases that
were long dated plus on new extensions or agreements.

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Reference
AASB, C.A.S., 2014. Business Combinations. Disclosure, 66, p.77.
AASB, C.A.S., 2015. Investments in Associates and Joint Ventures.
Bohusova, H. and Svoboda, P., 2017. Will the amendments to the IAS 16 and IAS 41
influence the value of biological assets?. Agricultural Economics
(ZemědělskáEkonomika), 63(2), pp.53-64.
Carey, P., Potter, B. and Tanewski, G., 2014. AASB Research Report No.
Day, T.H.J., 2016. Statement of Compliance.
Holland, D., 2016. Simplifying income recognition for not-for-profit entities. Governance
Directions, 68(11), p.666.
Steenkamp, N., Steenkamp, N., Steenkamp, S. and Steenkamp, S., 2016. AASB 138: catalyst
for managerial decisions reducing R&D spending?. Journal of Financial Reporting and
Accounting, 14(1), pp.116-130.
Xu, W., Xu, W., Davidson, R.A., Davidson, R.A., Cheong, C.S. and Cheong, C.S., 2017.
Converting financial statements: operating to capitalised leases. Pacific Accounting
Review, 29(1), pp.34-54.

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Appendix

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