Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Leasing is important to Royal Docks Limited. The Directors feel that it is important that they provide users of financial statements with a complete and

Leasing is important to Royal Docks Limited. The Directors feel that it is important that they provide users of financial statements with a complete and understandable picture of the entitys leasing activities. Royal Docks has leased plant for a fixed term of six years and the useful life of the plant is 12 years. The lease is non-cancellable, and there are no rights to extend the lease term or purchase the machine at the end of the term. There are no guarantees of its value at that point. The lessor does not have the right of access to the plant until the end of the contract or unless permission is granted by Royal Docks.

Fixed lease payments are due annually over the lease term after delivery of the plant, which is maintained by Royal Docks. Currently, Royal Docks accounts for the lease as an operating lease but the directors are unsure as to whether the accounting treatment of an operating lease is conceptually correct.

you are required:

  1. Discuss the reasons why the current lease accounting standards (IFRS 16) may fail to meet the needs of users and could be said to be conceptually flawed. (6 marks)

(ii) Discuss whether the plant operating lease in the financial statements of Royal Docks meets the definition of an asset and liability as set out in the Conceptual Framework of Financial Reporting.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Walter B. Meigs, A. N. Mosich, Robert F. Meigs

2nd Edition

0070412901, 978-0070412903

More Books

Students also viewed these Accounting questions

Question

find all matrices A (a) A = 13 (b) A + A = 213

Answered: 1 week ago

Question

What types of questions would make up a behavioral interview?

Answered: 1 week ago