Refer to the extracts from the Annual Report 2001–2002 of Larsen and Toubro Limited regarding its ‘Assets Held under Finance Leases’ as illustrated in this chapter. Analyse the case and attempt the following requirements:
1. Examine the policy of the company concerning valuation of its assets held under finance leases. Is the policy in accordance with AS-19 or not?
2. Examine the depreciation policy followed by the company on assets under finance leases. Two treatments have been meted out, is it justified?
3. Had AS-19 not been followed, what would have been the impact on the financials of the company? Is the treatment mandated by AS-19 better? Why or why not?
4. Assets acquired by the company under finance lease are mainly cars and personal computers. Could you opine why is it so?
5. Do you think the information provided about present value of lease payments, if supported by the fair value information of these assets as on the balance shut date, would be a better disclosure for the analyst? Why or why not?
6. In case of owned assets, details of year wise break up of loan liability and finance charges to be discharged in future are not disclosed in the financial statements. Why so then in case of leased assets treated as owned? Any purpose served by these disclosures?