Implications New Accounting Standard Leases -Myassignmenthelp.Com

Question: Discuss About The Implications New Accounting Standard Leases? Answer: Introduction Myer is the department store based in Australia incorporated in 2006. Their department store network involves the footprint of more than 60 stores in Australian retail stores. The merchandise categories of Myer includes different product categories like menswear, womens wear, childrens wear, beauty products, cosmetics are few to be named. The company is ranked at 145 among the top 2000 Australian companies. Majority of income for the company is generated through department stores in the Australian industry. The main objective of the company is to provide superior speciality services through creation of mutual rewarding relations with their customers through open, safe and inspiring environment (Myer.com.au 2018). On the other hand, National Australia Bank is the leader in delivering the bank services to the Australian businesses. They are specialists and expert in heath, education, government, community banking and agribusiness. Their main objective is to become the most respected bank in New Zealand and Australia. Majority of the banks business for financial services are operated in New Zealand and Australia with the other business being located in US, UK and Asia. The relationship of the bank with the customers are depended on the principles of advice, guidance and help for achieving better financial results for the customers (NAB.com.au 2018). Discussion AASB 16 and IFRS 16 deal with the lease treatment. As per the standard the companies are required to bring majority items under operating lease to record in the balance sheet of the company. The lessee shall measure the liability of lease at commencement date at present value of lease payments that are unpaid as on that date (Holland 2016). Further, the lease payments must be discounted through the implicit interest rate, if determined. However, if the rate is not determinable the incremental borrowing rate of the lessee shall be used by the lessee. However, after the date of commencement, lessee must measure right of use the asset through application of cost model (Xu et al. 2017). Further, for application of the cost model, the lessee shall measure right of use at cost reduced by the accumulated depreciation and impairment losses, if any and shall be adjusted for the measurement of lease liability, if any. Further, as per the disclosure requirement of the standard, the information shall be disclosed through notes together with information delivered in the balance sheet, cash flow statement and profit and loss account (Wong, Wong and Jeter 2016). These statements give the clear idea regarding the impact that leases may have on financial performance, financial position and the cash flows of lessee. Looking into the financial statement of Myer, it is identified that the payments towards operating lease are accounted for as an expense under the income statements of the company on straight-line method over the term of lease. Further the lease contributions or lease incentives from operating lease are accounted for as deferred income and is reversed on straight line basis over lease term. The increase of fixed rate to the lease payment without taking into consideration the index or contingent based increase in rents are accounted for on straight line method over lease term. A liability or asset is accounted for the difference among the paid amount and expenses of lease is recognized as income on straight line method. The improvements on account of leasehold properties are amortised over period of lease or expected useful life of the asset for improvement, whichever is less. Further, the provisions for leases are written back partially to the provision of lease rental increase that is fixed. Actual payments for lease can be varied with the amount provided as provision where any alternative uses of the assets are found that includes the new tenants attraction. Majority of the companys warehouses and stores under the operating leases that is non-cancellable are leased for 1 to 30 years of time. Further the key judgements for leases adopted by Myer is that the company classifies the leases as operating leases and financial lease based on whether the company holds all the rewards and risk associated with the ownership or not. While making the assessment, the company primarily considers the ownership on asset only after the completion of lease term (Dakis 2016). However, the reported commitments for lease do not include the rent that was treated as contingent at the inception of lease. The impact of the exclusion with regard to the reported commitments for lease is not considered as material fact. Looking into the annual report of NAB, it is identified that rents from operating lease are charged in the income statement on straight-line method over the term of lease. However, if the operating lease is terminated prior to the lease period end then whatever payment is made to lessor through penalty is recorded as expense under the income statement in the year of termination (Joubert, Garvie and Parle 2017). Further, the incentives from lease are recorded as the integral part of total expenses for lease over the term of the lease. Further, both the companies accounts the leases for equipment, plant and property under which the considerable portion of rewards and risks are retained with the lessor are considered as operating lease. On the other hand, leases under which the company retain considerably all the rewards and risks of the ownership are considered as finance lease (Wong and Joshi 2015). Conclusion It is concluded from the above discussion that both the companies follow AASB 16 for treating their leases. As per the standard all the liabilities and assets under leases for more than the term of 12 months are recognized in the financial statements unless the asset has very low value. Further, the lessee recognize the right-of-use asset as the companys right for using the asset and the lease liability as the obligation for lease payment. Further, as per AASB 16, both the companies will show the present value of the obligation as liability under balance sheet along with the asset available under right-of-use. Further, the income statement will be classified for the expenses associated with occupancy as interest expenses and amortisation. Reference Dakis, G.S., 2016. Upcoming changes to contributions and leasing standards.Governance Directions,68(2), p.99. Holland, D., 2016. Simplifying income recognition for not-for-profit entities.Governance Directions,68(11), p.666. Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet.Journal of New Business Ideas and Trends,15(2), pp.1-11. Myer.com.au., 2018. Home. [online] Available at: https://www.myer.com.au/ [Accessed 26 Jan. 2018]. NAB.com.au., 2018. Home. [online] Available at: https://www.nab.com.au/ [Accessed 26 Jan. 2018]. Wong, J., Wong, N. and Jeter, D.C., 2016. The Economics of Accounting for Property Leases.Accounting Horizons,30(2), pp.239-254. Wong, K. and Joshi, M., 2015. The impact of lease capitalisation on financial statements and key ratios: Evidence from Australia.Australasian Accounting Business Finance Journal,9(3), p.27. Xu, W., Xu, W., Davidson, R.A., Davidson, R.A., Cheong, C.S. and Cheong, C.S., 2017. Converting financial statements: operating to capitalised leases.Pacific Accounting Review,29(1), pp.34-54.