Random Research on various notions No.

Note: This writing is the mere product of my curiosity and will not constitute a formal opinion of any sort. Though, all/any comments are welcome.

The compound modifier1 long-term: I believe I am not the only person who used to hear that word and be not able to grasp its concept in a clear-cut manner. The first element that triggered my thought was long. The 14th episode of the Teen Titans series was entitled How long is forever? It was quite an interesting episode about how long a close friendship would last. And then, the term. Probably, I will do a research on how to differentiate between term (singular) and terms (plural). In this short writing, term means a period of time. Since it is used as part of a compound modifier, we (or at least I) will not try to use it in plural form. Put together, long-term means for a long period of time. And here comes the interesting part of my research, in Cambodian context: when can one say a period of time is long? We will discuss about long-term lease for illustration purpose. Qualification

If we talk to a legal guy, a long-term lease is a lease which is concluded for not less than 15 years. Because that is what the law2 says. So the criterion of distinction between a short-term lease and a long-term lease is the period of 15 years. Any immovable lease3 of less than 15 years, example a lease for Office purpose for 7 years, is qualified as short-term. But if we talk to an accountant, an operating lease records no asset or liability on the financial statements, the amount paid is expensed as incurred. On the other hand, a capital lease is recorded as both an asset and a liability on financial statements. This is complicated, and what we need to remember for now is there is no need for us to distinguish between longterm or short-term expenses (operating leases). A capital lease can be recorded under the assets and under the liabilities (some people might record it under loan, but I am not sure why). Let us go back to the previous example of Office Lease for a period of 7 years, but slightly different with an option to purchase at the end of the lease term (so that we can call it a capital lease).

Compoundmodifier?Notasagrammarguru,buttheWikipediacallsitacompoundmodifier,compound adjectiveorphrasaladjective; 2 Cambodianlaw:2001landlaw(partiallyabrogated)and2007CivilCode; 3 Forfurtherresearchonmovableleaseandimmovablelease,pleasereadthe2007CivilCode.

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Will this 7-year capital lease fall under the category of short-term lease (current asset, current liability)? In accounting, a current asset is an asset on the balance sheet which can either be converted to cash or used to pay current liabilities within 12 months4, whereas longterm assets (or non-current assets, or fixed assets) are those which are not current assets. Under these definitions, an account which falls under the category of assets for a period of longer than 12 months (or normal operating cycle of a business) will be qualified long-term or non-current assets. So the criterion of distinction between a current asset and a long-term asset is the period of 12 months. For this reason, our capital lease for 7 years is a long-term asset.

Implications A 7-year capital lease is governed by legal provisions applicable to short-term leases because it is less than 15 years - but is recorded as a long-term asset - because it is more than 12 months. Law and Accounting are interrelated disciplines. For taxation, we use knowledge from both sides: law and accounting (and also economics). However, the above example tells us to pay close attention to the qualification/criteria of one exact same thing under those two interrelated disciplines. Phnom Penh, 09 June 2012 THARA Rathvisal

Ihavebeentoldthatinsomerareorganizations,itispossiblethattheirInternalFinancePolicyrequires18 monthsratherthan12months.
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