Leases Essay Example | Topics and Well Written Essays - 1250 words

Leases - Essay ExampleIAS 17 has undergone many revisions in the past to ameliorate its application. However, even with all the amendments and revisions, it still has some issues that cause problems in its application in accounting for permits.The utilization of IAS 17 is to classify leases and provide the policies to guide how a firm treats leases in its financial statements. The standard has a few exceptions concerning some lease agreements. Some assets are also not part of the standard, therefore, their recognition and intercession do not fall within the standard. For the leases and assets that qualify within the standard, classification divides them into finance and run leases (IFRS, 2013a, p.771). The finis of the class of a lease as either a finance lease or an direct lease is at the commencement of the lease agreement. IAS 17.4 defines the two classes of leases giving their characteristics. The substance of the transaction, as opposed to the form, de nameines whether a lease is a finance or operating lease (IFRS, 2013a, p.772). The treatment and accounting for the two classes of leases differs. The lessee recognizes operating leases as an expense. The lease payments appear in the income statement as an expense over the lease term and follow a straight-line basis. The lessor recognizes assets under lease in the balance sheet. The income statement of the lessor recognizes the lease income on a straight-line basis.As for finance leases, their accounting involves recognition both as an asset and liability in the books of the lessee. The harbor to appear in the books is either the assets fair think of or the present value of the minimum lease payments, whichever is lower. The lessee also accounts for the depreciation of the asset in accordance with the existing depreciation policies and apportions lease payments between the reduction of the outstanding liability and the finance charge. On the lessors books, the accounting for a