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Thread: 19 Accounting Standard 19 - Leases - AS 19

  1. #41
    Accounting Standards
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    Default Separating payments for the lease from other payments of Accounting Standard 19 Leases – AS 19

    Separating payments for the lease from other payments of Accounting Standard 19 Leases – AS 19


    12 If an arrangement contains a lease, the parties to the arrangement shall apply the requirements of AS 19(Revised 20XX) to the lease element of the arrangement, unless exempted from those requirements in accordance with paragraph 2 of AS 19(Revised 20XX). Accordingly, if an arrangement contains a lease, that lease shall be classified as a finance lease or an operating lease in accordance with paragraphs 7–19 of AS 19(Revised 20XX). Other elements of the arrangement not
    within the scope of AS 19(Revised 20XX) shall be accounted for in accordance with other Standards.


    13 For the purpose of applying the requirements of AS 19(Revised 20XX), payments and other consideration required by the arrangement shall be separated at the inception of the arrangement or upon a reassessment of the arrangement into those for the lease and those for other elements on the basis of their relative fair values. The minimum lease payments as defined in paragraph 4 of AS 19(Revised 20XX) include only payments for the lease (ie the right to use the asset) and exclude
    payments for other elements in the arrangement (eg for services and the cost of inputs).


    14 In some cases, separating the payments for the lease from payments for other elements in the arrangement will require the purchaser to use an estimation technique. For example, a purchaser may estimate the lease payments by reference to a lease agreement for a comparable asset that contains no other elements, or by estimating the payments for the other elements in the arrangement by reference to comparable agreements and then deducting these payments from the total payments under the arrangement.

    15 If a purchaser concludes that it is impracticable to separate the payments reliably, it shall:

    (a) in the case of a finance lease, recognise an asset and a liability at an amount equal to the fair value of the underlying asset that was identified in paragraphs 7 and 8 as the subject of the lease. Subsequently the liability shall be reduced as payments are made and an imputed finance charge on the liability recognised using the purchaser’s incremental borrowing rate of interest.

    (b) in the case of an operating lease, treat all payments under the arrangement as lease.

    (c) in the case of an operating lease, treat all payments under the arrangement as lease payments for the purposes of complying with the disclosure requirements of AS 19(Revised 20XX), but

    (i) disclose those payments separately from minimum lease payments of other arrangements that do not include payments for non-lease elements, and

    (ii) state that the disclosed payments also include payments for non-lease elements in the arrangement.

    16 [Deleted]

    16A [Deleted]

  2. #42
    Accounting Standards
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    Default Illustrative examples for appendix C of Accounting Standard 19 Leases – AS 19

    Illustrative examples for appendix C of Accounting Standard 19 Leases – AS 19


    These examples accompany, but are not part of, this appendix.

    Example of an arrangement that contains a lease Facts


    IE1 A production company (the purchaser) enters into an arrangement with a third party (the supplier) to supply a minimum quantity of gas needed in its production process for a specified period of time. The supplier designs and builds a facility adjacent to the purchaser’s plant to produce the needed gas and maintains ownership and control over all significant aspects of operating the facility.
    The agreement provides for the following:


     The facility is explicitly identified in the arrangement, and the supplier has the contractual right to supply gas from other sources. However, supplying gas from other sources is not economically feasible or practicable.

     The supplier has the right to provide gas to other customers and to remove and replace the facility’s equipment and modify or expand the facility to enable the supplier to do so. However, at inception of the arrangement, the supplier has no plans to modify or expand the facility. The facility is designed to meet only the purchaser’s needs.

     The supplier is responsible for repairs, maintenance, and capital expenditures.

     The supplier must stand ready to deliver a minimum quantity of gas each month.

     Each month, the purchaser will pay a fixed capacity charge and a variable charge based on actual production taken. The purchaser must pay the fixed capacity charge irrespective of whether it takes any of the facility’s production. The variable charge includes the facility’s actual energy costs, which amount to about 90 per cent of the facility’s total variable costs.

    The supplier is subject to increased costs resulting from the facility’s inefficient operations.

     If the facility does not produce the stated minimum quantity, the supplier must return all or a portion of the fixed capacity charge.

    Assessment


    IE2 The arrangement contains a lease within the scope of AS 19(Revised 20XX).

    An asset (the facility) is explicitly identified in the arrangement and fulfilment of the arrangement is dependent on the facility. Although the supplier has the right to supply gas from other sources, its ability to do so is not substantive. The purchaser has obtained the right to use the facility because, on the facts presented—in particular, that the facility is designed to meet only the purchaser’s
    needs and the supplier has no plans to expand or modify the facility—it is remote that one or more parties other than the purchaser will take more than an insignificant amount of the facility’s output and the price the purchaser will pay is neither contractually fixed per unit of output nor equal to the current market price per unit of output as of the time of delivery of the output.

  3. #43
    Accounting Standards
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    Default Example of an arrangement that does not contain a lease Facts of Accounting Standard 19 Leases – AS 19

    Example of an arrangement that does not contain a lease Facts of Accounting Standard 19 Leases – AS 19


    IE3 A manufacturing company (the purchaser) enters into an arrangement with a third party (the supplier) to supply a specific component part of its manufactured product for a specified period of time. The supplier designs and constructs a plant adjacent to the purchaser’s factory to produce the component part. The designed capacity of the plant exceeds the purchaser’s current needs, and the supplier maintains ownership and control over all significant aspects of operating the plant. The arrangement provides for the following:


     The supplier’s plant is explicitly identified in the arrangement, but the supplier has the right to fulfil the arrangement by shipping the component parts from another plant owned by the supplier. However, to do so for any extended period of time would be uneconomic.

     The supplier is responsible for repairs, maintenance, and capital expenditures of the plant.

     The supplier must stand ready to deliver a minimum quantity. The purchaser is required to pay a fixed price per unit for the actual quantity taken. Even if the purchaser’s needs are such that they do not need the stated minimum quantity, they still pay only for the actual quantity taken.

     The supplier has the right to sell the component parts to other customers and has a history of doing so (by selling in the replacement parts market), so it is expected that parties other than the purchaser will take more than an insignificant amount of the component parts produced at the supplier’s plant.

  4. #44
    Accounting Standards
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    Default Assessment of of Accounting Standard 19 Leases – AS 19

    Assessment of of Accounting Standard 19 Leases – AS 19

    IE4 The arrangement does not contain a lease within the scope of AS 19(Revised 20XX). An asset (the plant) is explicitly identified in the arrangement and fulfilment of the arrangement is dependent on the facility. Although the supplier has the right to supply component parts from other sources, the supplier would not have the ability to do so because it would be uneconomic. However, the purchaser has not obtained the right to use the plant because the purchaser does not have the
    ability or right to operate or direct others to operate the plant or control physical access to the plant, and the likelihood that parties other than the purchaser will take more than an insignificant amount of the component parts produced at the plant is more than remote, on the basis of the facts presented. In addition, the price that the purchaser pays is fixed per unit of output taken.

  5. #45
    Accounting Standards
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    Default Appendix D of Accounting Standard 19 Leases - AS 19

    Appendix D of Accounting Standard 19 Leases - AS 19

    Click here for Appendix

    http://www.knowledgebible.com/forum/...(AS)-19-Leases

  6. #46
    Accounting Standards
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    Default Appendix E of Accounting Standard 19 Leases – AS 19

    Appendix E of Accounting Standard 19 Leases – AS 19


    Note: This appendix is not a part of the Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Accounting Standard (AS) 19 (Revised 20XX) and the corresponding International Accounting Standard (IAS) 17, Leases


    Comparison with IAS 17, Leases

    There is no major difference between the Exposure Draft of AS 19 (Revised 20XX), Leases and International Accounting Standard (IAS) 17, Leases.

  7. #47
    Accounting Standards
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    Default Appendix F of Accounting Standard 19 Leases – AS 19

    Appendix F of Accounting Standard 19 Leases – AS 19

    Note: This appendix is provided to bring out the major differences between the Exposure Draft of revised AS 19 and existing AS 19(Issued 2001) with a view to facilitate commentators in sending their comments on the Exposure Draft of revised AS 19.

    Major differences between the Exposure Draft of AS 19 (Revised 20XX), Leases, and existing AS 19 (Issued 2001)


    1. The existing AS 19 excludes leases of land from its scope (Paragraph 1(c) of existing AS 19) whereas the Exposure Draft of revised AS 19 does not have such scope exclusion. Exposure Draft of revised AS 19 has specific provisions dealing with leases of land and building. (Paragraph 15-18 of revised standard)

    Further, the Exposure Draft of revised standard does not be apply as the basis of measurement of property held by lessees/provided by lessors under operating leases but treated as investment property and biological assets held by lessees/provided by lessors under operating lease dealt with in the Accounting Standard on Agriculture. The existing standard does not contain similar provisions. (Paragraph 2 of revised standard)

    2. The definition of residual value appearing in the existing standard has been deleted in the Exposure Draft of revised standard. (Paragraph 3 of existing standard)

    3. Consequent upon difference between the existing standard and the Exposure Draft of revised standard in respect of treatment of initial direct costs incurred by a nonmanufacturer/ non-dealer-lessor in respect of a finance lease, the term ‘initial direct costs’ has been specifically defined in the Exposure Draft of revised standard (Paragraph 4 of revised standard) and definition of the term ‘interest rate implicit in the lease’ as per the existing standard has been modified in the Exposure Draft of the revised standard. (Paragraph 4 of revised standard and Paragraph 3 of existing standard)

    4. The Exposure Draft of the revised standard makes a distinction between inception of lease and commencement of lease. In the existing standard, though both the terms are used at some places, these terms have not been defined and distinguished. (Paragraph 4 of revised standard and Paragraph 3 of existing standard) Further, the Exposure Draft of the revised standard deals with adjustment of lease payments during the period between inception of the lease and the commencement of the lease term. This aspect is not dealt with in the existing standard. (Paragraph

    5 of revised standard. Also, as per the Exposure Draft of the revised standard, the lessee shall
    recognise finance leases as assets and liabilities in balance sheet at the commencement of the lease term whereas as per the existing standard such recognition is at the inception of the lease. (Paragraph 20 of revised standard and Paragraph 11 of existing standard)


    6. The Exposure Draft of the revised standard requires current/non-current classification of lease liabilities if such classification is made for other liabilities. Also, it makes reference to Accounting Standard on Non-current Assets Held for Sale and Discontinued Operations. These matters are not addressed in the existing standard. (Paragraph 41A of revised standard)


    7. As per the existing standard, if a sale and leaseback transaction results in a finance lease, excess, if any, of the sale proceeds over the carrying amount shall be deferred and amortised by the seller-lessee over the lease term in proportion to depreciation of the leased asset. While the Exposure Draft of the revised standard retains the deferral and amortisation principle, it does not specify any method of amortisation. (Paragraph 48 of existing standard and Paragraph 59-60 of revised standard )

    8. The Exposure Draft of the revised standard provides guidance on accounting for incentives in the case of operating leases, evaluating the substance of transactions involving the legal form of a lease and determining whether an arrangement contains a lease. The existing standard does not contain such guidance. (Appendix A, B and C of revised standard)


    9. There are some differences in disclosure requirements as per the existing standard and disclosure requirements as per the Exposure Draft of the revised standard.

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