S4-S7: What Are Leases? Accounting For Leases
S4-S7: What Are Leases? Accounting For Leases
S4-S7: What Are Leases? Accounting For Leases
• An Introduction to Leases
• Accounting of Leases by Lessee
• Accounting of Leases by Lessor
• Other Lease Topics
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Introduction - New Lease Standard
▪ New standard FRS 116 Leases prescribes, for both lessee and
lessor, the accounting treatment for leases
▪ Effective date is 1 January 2019
▪ Replaces FRS 17, INT FRS 15, INT FRS 27 & INT FRS 104
▪ FRS 17 was criticised for condoning non-recognition of leases
in lessee’s balance sheet
▪ New FRS 116 requires lessee to recognise (with optional
exemptions)
▪ An asset for the right created by lease, and depreciation
expense for asset
▪ A liability for the obligation created by lease, and interest
expense for liability
• Definition of lease:
• Conditions:
– There must be an identified asset
– The entity has the right to control the use of the identified asset
throughout the period of use
▪ Rental expense