Lessee Ltd

Lessee Ltd., which conducts financial accounting under world(prenominal) Financial report Standards (IFRS), has undertake equipment for a one-third course of study period. The equipment reverts back to the lessor at the end of the guide, and there are no purchase or renewal options. The remaining economic life of the equipment is intravenous feeding years. A jr. restrainer has categorize advertisement the arrangement as an direct lease, while a ranking(prenominal) accountant has class it as a pay lease. Each accountant has as well as performed the incumbent calculations under each classification. This position paper aims to asseverate which classification is make better, and whether the associated calculations are correct. Following is a banter of each accountants synopsis, as well as a resemblance between IFRS and U.S. mainly Accepted Accounting Principles (GAAP) with regard to this case. 1. Was the junior accountants epitome 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 pay lease.

Otherwise, it is classified as an operating lease. One of the situations that would normally star topology to a lease being classified as a finance lease is if the lease term is for the major collapse of the economic life of th e asset, regardless of whether title is actu! ally 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, ensnare it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper