Assignment of Financial

Reporting and Cost Control

Topic:- Hash out the concept of IAS 17 and IAS 33

Submitted To:- Jasmeen kaur

Submitted By:- Ankita
Roll No. :- 1703003007
B.COM 6TH SEMESTER
Concept of IAS 17:-
• IAS 17 Leases deals with the accounting and financial
reporting of the very common business transaction—lease.
Leases are the great example of “off-balance sheet” financing
if not recorded properly in the financial statements.
• In the past, many companies used to hide their finance lease
liabilities and they reported all lease payments directly to
profit or loss when paid. So no real picture of the transaction
was shown.
• Therefore, standard IAS 17 was issued in 1982 to tackle this
problem.
Definition of IAS 17:-
Lease - an agreement whereby the lesser conveys to the
lessee in return for a payment or series of payments
the right to use an asset for an agreed period of time.
Types of IAS 17:-
• Two types of lease
When studying ACCA F7 Financial Reporting, you’ll need to
be familiar with both types of leases. These are:
1)Operating Lease
2)Finance Lease
Finance lease:-
A finance lease (also known as a capital lease or a sales
lease) is a type of lease in which a finance company is
typically the legal owner of the asset for the duration of the
lease, while the lessee not only has operating control over the
asset, but also has a some share of the economic risks and
returns from the change in the valuation of the underlying
asset.
Subsequent Measurement of Finance
leaser:-
• Minimum lease payments shall be apportioned between the
finance charge and the reduction of the outstanding liability.
The finance charge shall be allocated to each period during the
lease term so as to produce a constant periodic rate of interest
on the remaining balance of the liability. Contingent rents shall
be charged as expenses in the periods in which they are
incurred.
• In practice, in allocating the finance charge to periods during
the lease term, a lessee may use some form of approximation
to simplify the calculation.
Disclosures of Finance Lease:-
Lessees shall, in addition to meeting the requirements of Ind AS
107 Financial Instruments: Disclosures, make the following
disclosures for finance leases:
(a)for each class of asset, the net carrying amount at the end of
the reporting period.
(b) a reconciliation between the total of future minimum lease
payments at the end of the reporting period, and their present
value. In addition, an entity shall disclose the total of future
minimum lease payments at the end of the reporting period,
and their present value, for each of the following periods:
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years.
(c) contingent rents recognised as an expense in the period.
(d) the total of future minimum sublease payments expected to be
received under non-cancellable subleases at the end of the
reporting period.
(e) a general description of the lessee’s material leasing
arrangements including, but not limited to, the following:
(i) the basis on which contingent rent payable is determined;
(ii) the existence and terms of renewal or purchase options and
escalation clauses; and
(iii) restrictions imposed by lease arrangements, such as those
concerning dividends, additional debt, and further leasing.
Operating Lease:-
• An operating lease is a contract that allows for the use of
an asset but does not convey ownership rights of the asset.
Operating leases are considered a form of off-balance-sheet
financing—meaning a leased asset and associated liabilities
(i.e. future rent payments) are not included on a company's
balance sheet. Historically, operating leases have enabled
American firms to keep billions of dollars of assets and
liabilities from being recorded on their balance sheets, thereby
keeping their debt-to-equity ratios low.
Disclosures of Operating leaser:-
Lessees shall, in addition to meeting the requirements of Ind
AS 107, make the following disclosures for operating leases:
(a) the total of future minimum lease payments under no
cancellable operating leases for each of the following periods:
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years.
(b) the total of future minimum sublease payments expected to
be received under non-cancellable subleases at the end of the
reporting period.
(c) lease and sublease payments recognised as an expense in the
period, with separate amounts for minimum lease payments,
contingent rents, and sublease payments.
(d) a general description of the lessee’s significant leasing
arrangements including, but not limited to, the following:
(i) the basis on which contingent rent payable is determined;
(ii) the existence and terms of renewal or purchase options and
escalation clauses; and
(iii) restrictions imposed by lease arrangements, such as those
concerning dividends, additional debt and further leasing.
Concept of IAS 33:-
• Earnings Per Share sets out how to calculate both basic
earnings per share (EPS) and diluted EPS. The calculation of
Basic EPS is based on the weighted average number of
ordinary shares outstanding during the period, whereas diluted
EPS also includes dilutive potential ordinary shares (such as
options and convertible instruments) if they meet certain
criteria.
Definition of IAS 33:-
• Earning per share is essentially a Ratio used in the
financial analysis of a set of financial statement. This
Ratio is however, so useful and popular that the
standard.
Types of IAS 33:-
There is two types of IAS 33
(1) Basic earning per share
(2) Diluted earning per share
Basic Earning Per Share:-
• An entity shall calculate basic earnings per share amounts for
profit or loss attributable to ordinary equity holders of the parent
entity and, if presented, profit or loss from continuing operations
attributable to those equity holders.
• Basic earnings per share shall be calculated by dividing profit
or loss attributable to ordinary equity holders of the parent entity
(the numerator) by the weighted average number of ordinary
shares outstanding (the denominator) during the period.
• The objective of basic earnings per share information is to
provide a measure of the interests of each ordinary share of a
parent entity in the performance of the entity over the reporting
period.
Earning:-
• For the purpose of calculating basic earnings per share, the
amounts attributable to ordinary equity holders of the parent
entity in respect of:
• (a) profit or loss from continuing operations attributable to the
parent entity; and
• (b) profit or loss attributable to the parent entity
Share:-
• For the purpose of calculating basic earnings per share, the
number of ordinary shares shall be the weighted average
number of ordinary shares outstanding during the period.
• Using the weighted average number of ordinary shares
outstanding during the period reflects the possibility that the
amount of shareholders’ capital varied during the period as a
result of a larger or smaller number of shares being
outstanding at any time.
Diluted earnings per share:-
• An entity shall calculate diluted earnings per share amounts
for profit or loss attributable to ordinary equity holders of the
parent entity and, if presented, profit or loss from continuing
operations attributable to those equity holders.
• For the purpose of calculating diluted earnings per share, an
entity shall adjust profit or loss attributable to ordinary equity
holders of the parent entity, and the weighted average number
of shares outstanding, for the effects of all dilutive potential
ordinary shares.
Earning:-
• For the purpose of calculating diluted earnings per share, an
entity shall adjust profit or loss attributable to ordinary equity
holders of the parent entity, as calculated in accordance with
paragraph 12, by the after-tax effect of:
• (a) any dividends or other items related to dilutive potential
ordinary shares deducted in arriving at profit or loss
attributable to ordinary equity holders of the parent entity as
calculated in accordance with paragraph 12;
• (b) any interest recognised in the period related to dilutive
potential ordinary shares; and
• (c) any other changes in income or expense that would result
from the conversion of the dilutive potential ordinary shares.
Share:-
• For the purpose of calculating diluted earnings per share, the
number of ordinary shares shall be the weighted average
number of ordinary shares calculated in accordance with
paragraphs 19 and 26, plus the weighted average number of
ordinary shares that would be issued on the conversion of all
the dilutive potential ordinary shares into ordinary shares.
• Dilutive potential ordinary shares shall be deemed to have
been converted into ordinary shares at the beginning of the
period or, if later, the date of the issue of the potential ordinary
shares. The number of dilutive potential ordinary shares
included in the year-to-date period is not a weighted average
of the dilutive potential ordinary shares included in each
interim computation.