Lessee Ltd

Lessee Ltd., which conducts financial accounting under world(prenominal) Financial report Standards (IFRS), has chartered equipment for a one-third course of study period. The equipment reverts back to the lessor at the end of the countenance, and there are no purchase or renewal options. The remaining economic life of the equipment is intravenous feeding years. A younger restrainer has separate advertisement the arrangement as an direct lease, while a precedential accountant has separate it as a pay lease. Each accountant has in addition performed the incumbent calculations under each classification. This position paper aims to posit which classification is make better, and whether the associated calculations are correct. Following is a watchword of each accountants abridgment, as well as a likeness between IFRS and U.S. mainly Accepted Accounting Principles (GAAP) with regard to this case. 1. Was the junior accountants digest correct? Wh y 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 pay lease.

Otherwise, it is classified as an operating lease. One of the situations that would normally eliminate to a lease being classified as a finance lease is if the lease term is for the major start of the economic life o f the asset, regardless of whether title is ! actually transferred. 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, direct it on our website: OrderCustomPaper.com

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