AC2101 S1 2014 Seminar 5 Leases (Anil).pptx

Oset against higher lease rental expense as fv ca

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Unformatted text preview: P/L *  Incurs future cash outflows from lease à༎ rental or interest expense à༎ future P/L *  Opportunities for earnings management – how? *  Using asset in effect as collateral to borrow money but dressed up as an asset sale *  Manipulating selling price (SP) and ALP of asset *  Arrange for SP > FV in return for a higher ALP *  Arrange for SP < FV in return for a lower ALP 28 14 Sale & Leaseback Issues 1.  How to distinguish SLB that is genuine vs. for managing earnings? *  Refer to INT FRS 27. For the purpose of this course, we would only examine SLB that is genuine. Students interested in SLB that is, in substance, other arrangements can refer to INT FRS 27 and NCKL Appendix A to chapter on FRS 17. 2.  How then to account for disposal gains/losses for a genuine SLB transaction? 29 Sale and Leaseback Accounting * Refer to write- up in seminar outline *  Issues in seller- lessee’s books *  Should profit or loss on the sales transaction be recognised immediately? *  Where the sales price is fixed artificially lower or higher than the fair market value so as to accommodate a higher- or- lower- than- market lease rental, how to recognise profit and loss? *  Depends on the nature of the leaseback *  Operating lease vs Finance lease 30 15 LB: Operating Lease *  Lessee transfers all risks & rewards of asset o...
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This document was uploaded on 02/10/2014.

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