PAS 17 - LEASES LEASES PAS 17 2 MODULE OBJECTIVES Identify...

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Unformatted text preview: LEASES LEASES PAS 17 2 MODULE OBJECTIVES Identify under what circumstances are accounted for as operating lease and as finance lease. Recognize related assets, liabilities, income and expenses in the financial statements of the lessor and the lessee under operating lease. Recognize related assets, liabilities, income and expenses in the financial statements of the lessor and the lessee under finance leases. Identify required disclosures in the financial statements of the lessor and lessees relating to both operating leases and finance leases. 3 SCOPE APPLIES IN Accounting for all leases, except (a) Leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources, and (b) Licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights. 4 DEFINITION PAS 17 define LEASE as an agreement whereby the lessor convey to the lessee in return for a payment or series of payment the right to use an asset for an agreed period of time. 5 OPERATING LEASE VS. FINANCE LEASE OPERATING LEASE a lease other than a finance lease. FINANCE LEASE - a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. Overview Overview When a lease contract transfers substantially all of the risks and rewards common to ownership to the lessee- Lessor treats transaction as a sale- Lessee treats transaction as a purchase When substantially all risks and rewards do not pass to lessee- Transaction is accounted for as a rental arrangement Lease Classification Lease Classification A lease is a finance lease if it transfers substantially all the risks and rewards incidental to ownership. Indicators of Finance Lease transfer of ownership by the end of the lease term; Bargain purchase option Lease term is for the major part of the economic life of the asset At the inception of the lease, the PV of the minimum lease payments is substantially all of the FV of the leased asset The leased asset is of so specialized nature, that only the lessee can use the same without modification 8 INDICATORS if the lessee can cancel the lease, the lessors losses associated with the cancellation are borne by the lessee; gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form of a rent rebate equalling most of the sales proceeds at the end of the lease); and the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent. OPERATING LEASE OPERATING LEASE A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. FINANCE LEASE OR FINANCE LEASE OR OPERATING LEASE ?...
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PAS 17 - LEASES LEASES PAS 17 2 MODULE OBJECTIVES Identify...

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