Wasim Osman

[waseem]

HI, im new and i need urgent help on leases, i dont get how they work for both parties, please advice

[chioma]

Hi Waseem, a lease cud be classified as either a financial or operating lease. According to IAS 17: A lease is classified as a finance lease if it tranfers all d risks & reward incident to ownership to d leasee, other types of leases are called operating leases.
Criterias for Risks & Rewards to ownership include:
1.Title passes to the leasee @ end of lease.
2.Lease runs for the economic life of the asset.
3.PV of minimum lease payments is substantial or all of the FV of d asset is paid, indicating that d leasee is effectively purchasing the asset.
4.If d asset is designed or taylored to d leasee's requirements.
5.Maintenance costs are borne by the leasee. D lease agreement generally favours the leasee.
Accounting Treatments vary depending on if it is a finance or operating lease.
Operating leases are recognised on straight line basis.
While financing lease is recognised as an asset, decreased by the instalments paid yearly, on d liability side of statmt of financial position. Remember d interest payment due on d lease wud be charged as a current liab, while remaining bal of instalment to pay in d nxt yrs, is classified under non current liab.
D IASB is currently trying to remove the various classifications b/w both leases cos of the difficulties encountered by accountants in their treatment. All leases to be treated as finance lease.
More suggestions are welcome on this topic.:rolleyes:

HI, im new and i need urgent help on leases, i dont get how they work for both parties, please advice