IAS 17 Leases ST

IFRS
Financial Accounting and New

edition
Reporting Study Text 2019
IAS 17 Leases
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Financial Accounting and Reporting
Study Text
IAS 17 Leases
Our text is designed to help you study effectively and efficiently. In this edition we:
• Highlight the most important elements
• key skills you will need
• Use overview and summary diagrams to develop understanding of interrelations
between topics
• Emphasize key points in section summaries
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IAS-17 Leases
IAS 17
Finance Operating Sale and

lease lease lease back
Finance Operating
Lessee Lessor Lessee Lessor
lease lease
Manufacturer Dealer
LESSOR
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Accounting for
Finance Lease
For Lessee For Lessor
• In Finance Lease substantially • In finance lease the lessor

all the risks and rewards of does not record the leased
ownership are transferred to asset in its financial
Lessee by Lessor. statements, as it has
transferred the risks and
• Records assets and liabilities
reward. Instead, he records
in financial statements (at
the amount as Receivable.
LOWER of; Fair value and
Present value of Lease • Receivable is described as:
payments; Net investment (N.I) = Fair
Subsequent Measurement: value + Initial direct cost.
Subsequent Measurement:
• apportion lease payments; as
finance charge and reduction • Record payments received
in liability during the year
• Record finance income
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Accounting for
Operating Lease
For Lessee For Lessor
• The lessor records the leased asset

in its financial statement, as he has
not transferred the risk and reward
of ownership.
• The lessee does not record the • At commencement the lessor adds
leased asset in its financial initial direct costs incurred by
statements. lessor.
• Instead, Lessee records the Subsequent measurement:
Rental Payments as EXPENSE • Lessor records the depreciation
on straight line basis over the expense; the policy must be
lease term. consistent with lessor's policy.
• Account for any impairment loss.
• Records Rental Income on a
straight-line basis over lease term.
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Accounting for
Manufacturer
Dealer LESSOR
A manufacturer or dealer often offers to customers to the choice of either buying or leasing an
asset. As these are LESSORS, therefore lessors accounting treatment are applied.
Finance Operating
Lease Lease
A finance lease gives rise to two types • Does not Record Sales
of income: • Record Asset
1. Profit or loss (difference • Record Depreciation
between sales and cost) • Record Impairment
2. Finance income. • Record Rental income
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Sale and Lease Back
(Finance Lease)
For For
Lessee Lessor
Sale of Lease back Purchase Leased

Asset of Asset of Asset the Asset
• Remove the • Recognize

asset from asset under
Financial finance lease. • Does not
Statements. • Record Lessee
• Create an records the
as Receivable.
• Defer and obligation asset.
amortize any under finance • As the asset is • Record Lease
surplus/Gain lease. not transferred receipts during
over lease the period.
• Depreciate physically nor
term. Asset and risk and reward • Record Finance
• If loss, then amortize are. Income.
immediately liability
recognize. subsequently.
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Sale and Lease Back
(Operating Lease)
For For
Lessee Lessor
Sale of Asset
1. Remove asset from financial statements.
Purchase of Asset
2. Record Gain/Loss, where;
I. sale at fair value: gain/loss is recognized • The lessor records the leased asset in
immediately on disposal. its financial statement.
II. sale at less than fair value: gain/loss is Subsequent measurement:
recognized immediately on disposal (if • Lessor records the depreciation
lease payments are not compensated at
below market price). If NOT so, any loss is
expense; the policy must be consistent
deferred over expected use of asset. with lessor's policy.
III. sale at more than fair value: • Account for any impairment loss.
- normal gain/loss (Fair value - carrying Lease of the Asset
amount) is recognized immediately. • At commencement the lessor adds
- excess profit (actual sale - fair value) is initial direct costs incurred by lessor.
deferred and amortized over expected use
of asset. • Records Rental Income on a straight-
Lease Back of Asset line basis over lease term.
• Record normal Rental payments as
Expense.
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IFRS

Financial Accounting and New

Reporting Study Text 2019

• Highlight the most important elements

• key skills you will need

• Use overview and summary diagrams to develop understanding of interrelations

• Emphasize key points in section summaries

How Mind Mapping helps make things simpler

Mind mapping a topic:

Finance Operating Sale and

For Lessee For Lessor

• In Finance Lease substantially • In finance lease the lessor

For Lessee For Lessor

• The lessor records the leased asset

Sale of Lease back Purchase Leased

• Remove the • Recognize

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