in the 20th century the 1970s with the leasing business in the prevalence of various countries have drawn up relevant national laws and regulations as well as guidelines on the accounting system to regulate the industry.  lease accounting is more and more important, not only because of the size and reach of the leasing industry but also more and more companies need this industry to help them to get strong.  it allows smaller enterprises can use the cost of access to the larger interests.  enterprises can hire their own needs what machinery equipment or even plant for production.  this can make enterprises in the most efficient production at the same time reduce the level of capital outflow.  at the same time, the cost of leasing is not fully reflected in the needs of enterprises in the financial reporting; it also let enterprises can use this method to beautify their financial reporting.  i will divided this essay into two part in the first part i will identify and critically evaluate the key financial reporting issues relating to lease accounting, distinguishing clearly between a ‘finance leases ’ and ‘operating lease’ as per international accounting standard(ias)17 leases.  in the second part i will discuss the extent to which you agree with a suggestion about lease accounting which nobes, c. in ‘comparative international accounting’

part 1

different have the different rule about the leases.  however those rules only have a little different contrast.  let using international accounting standard (ias) 17 usa financial accounting standards board (fasb) 13 and uk statement of standards accounting practice (ssap) 21 rule to show how those rules have different contrast.

in ias 17 their definition lease as: “a lease is agreement whereby the less or conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period and time.  an agreement in which one party gains a long-term rental agreement and the other party receives a form of secured long-term debt.”  in fact, there would be more than two parties involved into a lease at the same time.  in some of county’s leases will give the lessee the option to purchase the asset at the end of the lease term, or may require the lessee to purchase the asset at the end of the lease term.  .

fasb 13 accounting for leases:

accounting is determined by whether the rights and risks of ownership are passed from lessor to lessee.  if ownership is transferred, a capital lease exists. otherwise, it is an operating lease.

ias 17 distinguishes between two types of lease –finance and operating and recommends different accounting treatment for each.  in brief, the definitions were as follows: ‘finance lease: a lease the transfers substantially all the risks and rewards of ownership of an asset.  may not eventually be transferred.  operating lease is a lease other than a finance lease.’  compared to the finance leases of operating lease is a lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset.  in those standards all agree that transfer of ownership the lessor have the right to choose to buy the asset after the lease term could be the finance leases.  the differences only in how to calculation the operating leases.  fasb which in us ordain that 75% economic life and or 90% asset value is a standard to partition between finance leases and operating leases.  if the lessor leases the asset and use the 75% of the economic life or 90% asset value of this asset it will be a financial leases.  if they are not use the 75% or 90% asset value of the economic life of this asset it will be an operation leases. 

in the leasing which are finance leases and operating leases the financial impacts on businesses have significant differences.  therefore accountant need to that content of leases which for lessee and lessor.

in the lessee accounting it have 3 point about the deal with the finance leases.  firstly, finance leases states that ‘finance leased assets are capitalized at their fair value, or the present value of the guaranteed minimum lease payments if lower than fair value, and a lease creditor is set up for the same amount.’  secondly, in part of economic life of the asset and the lease term, the fixed asset required to be depreciated over.  thirdly, lease creditor and income statement must use the sum of digits method and the interest rate implicit in the lease to the allocated by interest. 

there is the balance sheet step for a finance lease

1.      the leased asset should be capitalized in property, plant and equipment (and recorded separately) at the lower of the present value of lease payments and its fair value.

2.      the annual depreciation charge for the leased asset should be calculated by depreciating over the shorter of the estimated useful life of the asset or the lease term.

3.      the net book value of the leased asset should be reduced by the annual depreciation change.

4.      the finance lease obligation is a liability which should be recorded.  at the inception of a lease agreement, the value of leased asset and the leased liability will be the same.

5.      a) the finance charge for the finance lease should be calculated as the different between the total of the minimum lease payments and the fair value of the asset.

b) the finance charge should be allocated to the accounting periods over the term of the lease.  three methods for allocating finance charges are used in practice:

u      actuarial method

u      sum of digits method

u      straight-linc method

6.      the finance lease obligation should be reduced by the difference between the lease payment and the finance charge.  this means that first the lease payment is used to repay the finance charge, and then the balance of the lease payment is used to reduce the book value of the obligation. 

income statement steps for a finance lease

1)        the annual depreciation charge should be recorded.

2)        the finance charge allocated to the current period should the recorded.

in accounting finance leases are recorded as a purchase/sale on the balance sheet as both an asset and a related liability. in accounting operating leases are treated as an operating expense, and no asset or liability is recorded as part of the capital of the firm. finance leases create an asset and liability in the lessee's accounts, while operating leases are accounted for only as rental obligations accrue. the treatment of operating leas