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Unformatted text preview: 1 Issues in Corporate Financial Reporting and Analysis (ACCT3563/3573) Accounting for Accounting for Leases Learning Objectives Understand the economic importance of leasing, and why it is an important and controversial issue in accounting Understand what leasing is, and distinguish between finance and operating leases Understand the accounting treatments for: – Finance leases – Operating leases – Sale and leaseback arrangements Consider consistency with the framework and likely future developments 26/04/2009 3:46:13 PM 2 ACCT3563/3573 IFRAACCT3563/3573 IFRA Required readings Picker, Chapter 12 Deegan, Chapter 11 AASB 117 “Leases” AASB 117, Leases 26/04/2009 3:46:13 PM 3 ACCT3563/3573 IFRAACCT3563/3573 IFRA Net and Gross Methods ….don’t worry about the “gross” method, this course uses “net” method only 26/04/2009 3:46:13 PM 4 ACCT3563/3573 IFRAACCT3563/3573 IFRA What is leasing? “A means of obtaining the use of, or financing, the acquisition of assets” Henderson & Pierson Issues in Financial Accounting (The definition from the Standard soon!!) 26/04/2009 3:46:13 PM 5 ACCT3563/3573 IFRAACCT3563/3573 IFRA What is leasing? The type of assets which may be leased include: Physical assets – land, plant and buildings, vehicles; Intangible assets – patents, copyrights, mineral rights Generally, ______ agreements, relating to the provision of services, such as cleaning or maintenance are not regarded as leases, as they do not involve an asset. They are regraded as executory contracts. 26/04/2009 3:46:13 PM 6 ACCT3563/3573 IFRAACCT3563/3573 IFRA 2 Why is leasing an important issue? Rapid growth of leasing as an alternative form of financing …..initially in 1970’s, which brought first reaction from standard-setters in 1980s Around one-third of all PP&E are now financed under leasing arrangements ____________ Sheet financing ….”massaging” balance sheets – Total annual leasing volume in 2007 amounted to US$760 billion; yet many of those lease contracts are not recognised in an entity’s balance sheet (World Leasing Yearbook 2009). 26/04/2009 3:46:13 PM 7 ACCT3563/3573 IFRAACCT3563/3573 IFRA Why is leasing an important issue? Economic benefits of leasing rather than owning …..repairs, maintenance, renewals, legal obligations Focusing on core business ……e.g., banks selling and leasing back properties selling and leasing back properties Diversity in accounting treatments, and difficulties in classifying, and measuring leases ….. many judgements involved 26/04/2009 3:46:13 PM 8 ACCT3563/3573 IFRAACCT3563/3573 IFRA AASB 117, “Leases”, is the relevant standard applying to accounting for leases. It should be applied in accounting for all leases, except (para 2): leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources; and Accounting for leases licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents...
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This note was uploaded on 05/02/2010 for the course ACCT 3756 taught by Professor Leung during the Three '09 term at University of Sydney.
- Three '09