Lessee Ltd

Lessee Ltd., which conducts financial accounting under world(prenominal) Financial report Standards (IFRS), has contract equipment for a one-third course of study period. The equipment reverts back to the lessor at the end of the read, and there are no purchase or renewal options. The remaining economic life of the equipment is cardinal years. A subordinate restrainer has sort advertisement the arrangement as an direct lease, while a old accountant has categorize it as a finance lease. Each accountant has withal performed the incumbent calculations under each classification. This position paper aims to dedicate which classification is make better, and whether the associated calculations are correct. Following is a give-and-take of each accountants analytic thinking, as well as a relation between IFRS and U.S. mainly Accepted Accounting Principles (GAAP) with regard to this case. 1. Was the junior accountants digest correct? Why or why not? The junior accountants analysis was incorrect. According to International Accounting Standard (IAS) 17, leases are classified based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. If a lease transfers substanti exclusivelyy all the risks and rewards incidental to ownership, it is classified as a finance lease.

Otherwise, it is classified as an operating lease. One of the situations that would normally authorize to a lease being classified as a finance lease is if the lease term is for the major fibre of the economic life of the asse t, regardless of whether title is actually t! ransferred. In this case, the three year term of the lease is 75% of the four year economic life of the asset. Therefore, this lease should be accounted for as a finance lease. 2. Was the senior accountants analysis correct? Why or why not? The senior accountants analysis was also incorrect. While he mightily classified the lease as a finance lease, cardinal of his calculations were incorrect. First, he...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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