Lease Accounting one shot Revision Financial Accounting BComBBACACMA

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Application link :- https://play.google.com/store/apps/de... • Lease accounting is a crucial aspect of financial accounting, particularly for businesses that rely on leasing arrangements to acquire assets. In the context of financial accounting, leases are classified into two main types: operating leases and finance leases. Let's delve into the key concepts related to lease accounting in a comprehensive overview. • Definition of Lease: • A lease is a contractual arrangement between a lessor (owner of the asset) and a lessee (user of the asset) that grants the lessee the right to use the asset for a specified period in exchange for periodic lease payments. • Types of Leases: • 1. *Operating Lease:* • Short-term in nature. • No transfer of ownership rights. • No significant risk and rewards transferred to the lessee. • Expense recognized on a straight-line basis over the lease term. • 2. *Finance Lease:* • Long-term in nature. • Transfer of ownership rights may occur. • Substantial risks and rewards associated with ownership transferred to the lessee. • Recognizes both an asset and liability on the balance sheet. • Recognition and Measurement: • 1. *Operating Lease:* • *Lessee:* • Recognizes lease payments as operating expenses. • No asset or liability recorded on the balance sheet. • *Lessor:* • Continues to recognize the asset and records lease income. • 2. *Finance Lease:* • *Lessee:* • Recognizes the right-of-use asset and lease liability on the balance sheet. • Depreciates the asset and recognizes interest expense on the liability. • *Lessor:* • Recognizes a receivable and removes the leased asset from its balance sheet. • Calculations: • 1. *Present Value of Lease Payments:* • Used to calculate the initial recognition of the lease liability for finance leases. • 2. *Interest Expense:* • Calculated using the interest rate implicit in the lease or, if not determinable, the lessee's incremental borrowing rate. • Disclosures: • 1. *Lessee Disclosures:* • Nature of the lease arrangements. • Future lease payment obligations. • Maturity analysis of future lease payments. • Certain qualitative and quantitative disclosures. • 2. *Lessor Disclosures:* • Separates lease income into finance income and the unwinding of the discount on the receivable. • Discloses a maturity analysis of the future lease receipts. • Recent Changes: • 1. *IFRS 16 and ASC 842:* • Both standards aim to bring more transparency to lease accounting. • Require lessees to recognize most leases on their balance sheets. • Conclusion: • Lease accounting plays a vital role in portraying a company's financial position accurately. Whether it's operating or finance leases, understanding the nuances of recognizing, measuring, and disclosing lease-related information is essential for financial professionals in the B.Com, BBA, CA, or CMA streams. Stay updated with accounting standards to ensure compliance and provide stakeholders with transparent financial information.

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