The international Accounting Standards Board (IASB) published a revised Exposure Draft (ED/2013/6) on 16 May 2013. Users of the existing accounting models conclude that it failed to meet the user’s needs because it does not always represent the true leasing transactions. The main proposed changes, impact, and comment letters received regarding leases will be discussed in this report.
II. Proposed Changes
The existing accounting model for leases classified leases as finance or operating leases and measure them in different way, mainly the models do not recognize assets and liabilities from operating leases. It caused some problems such as off-balance-sheet activities, two different accounting models for leases, and inadequate information of lessor exposure to credit risk. That are the reasons IASB and FASB take into consideration with main proposed changes requirements would be for assets and liabilities arising from a lease to be recognized.
II.I Proposed changes in accounting model and leases classification
The exposure draft requires an entity to recognize assets and liabilities resulted from a lease. Lessee and lessor need to allocate the lease according to the basis of how much will the lease expected to consume portion of economic benefits assigned in the underlying asset. The leases are divided into two categories, Type A and Type B. The requirements of type A leases are assets other than property, and comply one of the requirement, either the lease term is for an insignificant part of total economic life of underlying assets or the present value of lease payments is insignificant compared to fair value of the underlying asset at inception date. If the requirements are not found, the lease is classified as Type B lease. Properties assets are considered as part B lease and need to meet one of the requirements of; the lease term is for major part of remaining economic life of underlying asset, or present value of lease payment accounts considerably all of fair value of underlying asset at inception date. If the requirements are not found, the lease is classified as Type A lease. Example:
II.II Proposed changes in right-of use...