Accounting

The Balance Sheet of Leighton Ltd and Clough Ltd

Introduction: Leasing is an important concept in asset management and trade. A lessor can lease out an equipment, building, machinery, vehicle, etc, and enjoy the benefits of getting capital of their value in circulation. Many companies find certain assets of no significant use in their business. The lease out such assets and as the lease amount gets transferred to the lessee, the lessor can again lessee the lessor, the risks and benefits of ownership get transferred to the lessee. Lease specifies the contingent liabilities returns, fixing responsibility for maintenance of assets and availing of depreciation. Diversity in accounting practices and a system of rapid and 100 percent finance for fixed interest rates makes leasing a subject matter of inquiry.The ABSB defines a lease as an agreement whereby the lessor 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 (AASB 117 para 4). As the lease period increases from short term to long term the risks and rewards associated with ownership shifts from the lessor to the lessee. There are two types of leases—1. Operating Lease. 2. The Finance Lease.Finance Lease: In the Finance Lease, the fair value of the asset is taken into account. Fair value is the actual cost of the asset assessed at the time when the lease agreement is signed. The lessee then pays the amount of interest on the lease amount which is called the finance charges. The Finance Lease last for most of the life of an asset that it can be put to good use. The ‘time of good use’ is agreed upon by the lessee and lessors with the help of analysts before the signing of the lease agreement. In other words, the company can avail the depreciation benefits only for such a time as the asset can put to good use. It is recognized in the finance lease that at the end of the lease period the ownership gets transferred to the lessee. The Present Value of the Lease is arrived at calculating the interest over the years, the lease is valid.

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