Question

Are the new requirements for lessee accounting under AASB 16 ‘Leases’ likely to overcome the problems associated with lease classification under AASB 117 ‘Leases’? Explain.

Answer 1

Under AASB 117, leases were required to be classified as Operating or Finance lease. Since the accounitng treatment of both are different it is criticized by preparers and auditors as it has prooved dificult in dividingl ine between both type of leases in principaled way. It was noted the methods reduced comparatability as well as usefulness of the operations

However new ASSB 16 introduced  a single accounting model under which lessees must recognise all leases (including property and equipment) on the balance sheet as a new ‘right of use asset’ and ‘lease liability’. This removes the limiation of segregation but there still exist issues as inputs not captured in company's record are subject to estimates which require reassessment and recalculation of the asset and liability each reporting period.