Leasing

As part of my corporate finance module, I contrive been asked to write up an assignment discussing the puzzles faced by business relationship for engrosss. To do this, I will at first divvy up the current standard and then argue the problems that arise from this standard. what is more I will discuss why there have been calls to ‘revamp’ the existing model. Finally, I will discuss the solutions to this problem and argue if change in the current models is necessary.

Lease
IAS 17 defines a lease as an agreement whereby the Leaser expresses to the lessee the right to use an asset for a time period that’s agreed upon, in return for a fee or series of fees. If this is the case, ‘the IASB rules ar to be app lie ind to the substance of agreements rather than their legal pass water’ (IASB cited in Alexander et al 2007 chapter 15). This basically states that because a contract asset is not legally owned, it has to be treated in a way that is accepted by the IASB. From this description arises the categorization of leases, Finance and Operating leases. IAS 17 Leases, defines a finance lease as a lease that transfers significantly most of the kale and liabilities enjoyed by an asset to the acquirer. Therefore, Operating leases are any new(prenominal) leases other than finance.



From this it is arguable that the classification of leases between finance and run is therefore based on the extent to which returns or rewards and obligations lie with either the leaser or the lessee (Alexander et al 2007). To add to the previous come out IAS17 requires that all the risk must be passed on in coif for it to be considered as a finance lease, if not it would be classified as an operating lease. The different score treatments both have huge implications on profits, asset returns and gearing ratio of a company therefore the application of these treatments should be handled very carefully and in accordance with the IASB rules (Elaine, Henry et al 2007). However, the problems arise from...If you want to get a full essay, order it on our website: Orderessay



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