Q1:
The AASB 138 had been adopted by the reporting entities in Australia after the introduction in the International Financial Reporting Standards (IFRS). It became effective for reporting companies on or after 1 January, 2005. This introduction would completely change the way it is recognized and measured for accounting purposes as per the Australian standards. The main motive behind the introduction of this section is to identify how the non-monetary assets shall be represented in the financial statements. (Deegan 2012)
Firstly, the recognition of the assets has a strict rule to abide by. There are many points to consider before the recognition and as well the revaluation and assessment of the same. Many internally generated intangible assets are not to be recognized, henceforth, further reduces the value of the balance sheet. There would be lack of information on intangible assets because many would not be reported. The amortization of Goodwill has also been changed. Now it has to be assessed whether …show more content…
Since they are not disclosed the companies would opt to go for lease rather than buying the assets and bear the effects of it. This is the main reason why the off balance sheet liabilities were 66 times greater than the debt of the statements. (Hoogervorst, 2016). There are several advantages backing the lease financing:
1. The lease can be easily cancelled at any time prior to the expiry of the lease period.
2. The hassle of owning and maintaining is shifted from the user to the owner i.e.; the user and owner are separate and hence insurance and maintenance is the lessor’s responsibility.
3. Since the asset is not disclosed the ROA will be higher as Assets are lowered and hence more investors will be attracted.
4. There is also has tax benefits associated with it.
These are the reasons why the company would opt for operating lease making it 6 times greater than the debt. (Accaglobal.com,
The AASB 138 had been adopted by the reporting entities in Australia after the introduction in the International Financial Reporting Standards (IFRS). It became effective for reporting companies on or after 1 January, 2005. This introduction would completely change the way it is recognized and measured for accounting purposes as per the Australian standards. The main motive behind the introduction of this section is to identify how the non-monetary assets shall be represented in the financial statements. (Deegan 2012)
Firstly, the recognition of the assets has a strict rule to abide by. There are many points to consider before the recognition and as well the revaluation and assessment of the same. Many internally generated intangible assets are not to be recognized, henceforth, further reduces the value of the balance sheet. There would be lack of information on intangible assets because many would not be reported. The amortization of Goodwill has also been changed. Now it has to be assessed whether …show more content…
Since they are not disclosed the companies would opt to go for lease rather than buying the assets and bear the effects of it. This is the main reason why the off balance sheet liabilities were 66 times greater than the debt of the statements. (Hoogervorst, 2016). There are several advantages backing the lease financing:
1. The lease can be easily cancelled at any time prior to the expiry of the lease period.
2. The hassle of owning and maintaining is shifted from the user to the owner i.e.; the user and owner are separate and hence insurance and maintenance is the lessor’s responsibility.
3. Since the asset is not disclosed the ROA will be higher as Assets are lowered and hence more investors will be attracted.
4. There is also has tax benefits associated with it.
These are the reasons why the company would opt for operating lease making it 6 times greater than the debt. (Accaglobal.com,