This assignment aims at developing a clear understanding of students on Accounting standard for lease. Students are required to critically examine the new accounting standard for lease financing AASB...

ACCOUNTING FOR LEASE
Executive summary
The report is based on the evaluation of the accounting standard for lease which has been modified. The report begins with an introductory paragraph about the topic followed by the discussion of the old and predominant accounting standard for lease AASB 117 has been replaced by the new accounting standard which is called AASB 16. So the report studies the old standard and compares it with the new standard by assessing the drawbacks of the old standard, the necessary for change in the standard, the changes which are present in the new standard AASB 16, possible effects of the change, the reasons for which the entities has classified all lease contracts as operating under the old standard, the behaviour of the managers relevant to the positive accounting theory, improvement of comparability of companies after incorporation of AASB 16, reasons for which reporting companies take decisions to purchase more assets and lease fewer assets after the incorporation of AASB 16 as the new accounting for lease? And finally the notable disclosures of New - crest mining regarding the accounting treatment for lease, along with the transitional provision and the outcome of the change in the lease accounting standard. Finally, the report ends with possible concluding statements.
Table of contents
Introduction    4
Evaluating the predominant accounting standard of AASB 117 including the disadvantages    5
Necessary for the alteration of standard    6
Changes which are made in the new lease accounting standard AASB 16    7
Effects of change in lease accounting standard on companies which has a considerable level of lease financing    7
Reasons for which companies classified many lease contracts as operating one    8
Ways in which the positive accounting theory is relevant to such behavior of managers    8
Improvement of comparability of companies under IFRS 16 which lease assets and the entities which make loans to purchase assets    9
Why will reporting companies take decisions to purchase more assets and lease fewer assets after the adoption of AASB 16 as the new accounting for lease?    9
Disclosures of New crest mining company regarding the accounting for lease accompanied by the transitional provision and the outcome of the change from AASB 117 TO AASB 16    10
Conclusion    11
Reference list    12
Introduction
A lease is an essential part of accounting as companies often lease assets or hire assets on lease. The accounting standard of the lease was AASB 117 but after changes, the accounting standard for lease is AASB 16. Such a change in the accounting standard was very much needed because of certain drawbacks in the old accounting standard. The new accounting standard for lease AASB 16 has fulfilled certain requirements which were not met by the old one. These requirements are the notable changes incorporated in the new lease accounting standard AASB 16. These changes have an effect on the companies which has a considerable level of lease financing. After the adoption of AASB 16 companies opt for purchase rather than leasing. Irrespective of types of lease companies, companies classify many lease contracts as operating as it is beneficial. Such classification is done by managers whose behaviour is relevant to PAT.
There are many ASX companies which interpreted the new standard. One of them is New- crest mining which has interpreted the new accounting standard, its effect and made certain disclosures about AASB 16.
Evaluating the predominant accounting standard of AASB 117 including the disadvantages
The old accounting standard for lease AASB 117 was used to lay down the accounting policies and make required disclosures related to leases. This standard could be used for any types of the lease except the lease for mineral oil usage, natural gas, licensing contracts, investment property lease, and biological assets.
According to the accounting standard AASB 117, lease involves the agreement for usage of an asset. This standard states that the hirer can avail the opportunity to get the title of respect asset when all conditions are satisfied. AASB 117 treats the lease as a hire purchase agreement and it considers the "fair value" as a different idea as compared to the original definition of fair value in AASB 13 (Xu et al. 2017, p.34).
AASB 117 has classified lease which is dependent on the degree of risks along with benefits related to the ownership of that particular asset. AASB 117 has identified that the risk of the hired asset represents the loss which occurs from the idleness of the asset due to obsolescence. Risks can also occur because of reduced return from the asset. Apart from risk, AASB 117 tells that benefits from the hired asset involve the profits obtained from the useful life of the asset or money obtained from selling the asset.
As per the old accounting standard for lease, the lease can be operating or finance lease. When all benefits and risks are transmitted to the owner of the asset the lease under this standard is the finance lease but when the risks are not transferred the lease is said to be an operating lease. The nature of the lease whether operating or finance is based on the nature of the transactional relationship and not the nature of the agreement.
The AASB 117 has laid down guidelines for measurement for the finance lease. As per this standard, the lease payment will have to be appropriated with the finance and the decrease in the liability with respect to the particular asset. Under this standard, the finance of the asset is the finance charge which will have to be allocated to every year within the lease tenure in order to generate a regular interest rate upon the liability balance (Joubert et al. 2017, p.11). Under this standard, the contingent rent will have to be treated as costs as and when they are made. This is the way in which finance leases are measured as per AASB 117.
In case of an operating lease, the lease payment will have to be recorded as the cost and treated on a straight line method for the entire lease term.
In spite of the measurement of the lease as per AASB 117, there are certain drawbacks of this old standard for which the new standard has been adopted. The old standard AASB 117 did not disclose the operating lease as a balance sheet item whereas, under the new standard AASB 16, entities can bring many operating leases under the balance sheet.
The old accounting standard AASB 117 lacked transparency in relation to the company’s lease agreements so the new lease standard AASB 16 was introduced. With the help of new standard AASB 16, lease data can be captured more effectively (Irvine et al. 2010).
Necessary for the alteration of standard
The change of the lease accounting standard was needed because as per the old lease standard AASB 117, one single model for lease accounting was lacking. The AASB 16 considers lease under a single model which includes various transition and practical applications.
The old standard AASB 117 has considered various operating lease as off-balance items which were the most important drawback and to remove this drawback the change was needed. Previously the leases with respect to property equipment were treated as an off-balance sheet and such items were treated as the right for asset usage...