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Essay On Ias 17

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1) HISTORICAL DEVELPOMENT OF IAS 17
IAS 17 is known as accounting for lease agreement. IAS 17 was announced on September, 1982 and rearrangement the format on November, 1994 afterwards effective on year 1999. It is an agreement between two entities in renting out an asset which is lessor and lessee. For the example, Entity A as a bank, finance company or a loan shark buy machine and rent it out to the Entity B which is manufacturing company. Entity B will use the machine in the business to make money and afterwards make the rental payments based on the time period. In this situation, Entity A is known as lessor whereas Entity B is known as lessee.
The reason why the IAS 17 will introduced is because of abuses in the use of lease accounting …show more content…

Finance lease is a legal ownership remains with lessor but the RRC (risk, rewards and control) belongs to lessee therefore it is based on substance over form rule. In other hand, the legal ownership and the RRC (risk, rewards and control) of operating lease remains with lessor. Next, the lease term for finance lease will substantially cover most of the estimated useful economic life of asset whereas for operating lease it is normally very short term agreement such as 3 days, 1 week, 1 month and others. After than that, there are two types of lease term for finance lease which is primary non- cancellable period and secondary cancellable period and there are no such periods for operating lease. In addition, for finance lease the present value of minimum lease payment must more than or equal of 90% of cash price that means pass the 90% of test. And for the operating lease is typically opposite from finance lease which is fails the 90% test.
In other hand, there are three types of accounting treatment for IAS 17 which is finance lease in lessee books, operating lease in lessor books and operating lease in lessee

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