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    • Profile photo of John Moffat says

      Any Study Text from one of the approved publishers will contain a chapter on accounting conventions. If you are unable to access a study text then you will find more using Google.
      Also see my answer to Jim below.

  1. avatar says

    under the substance over form concept, it says assets hired and used in the business should be shown in the balance sheet. My questions are
    1. if this is shown, does it make the accounts true & fair since it may be perceive to be for the business by users
    2. then if it should even appear in the balance sheet why not at the liabilities side since it is an obligation to the business so far as the asset is in the premises
    3. Will the asset be shown at hired value or cost or net book value?
    4. Will it be depreciated in the business books or the owners books
    5. when it is sent back to the owner how will it be remove from the business books?
    Thanks ear

    • Profile photo of John Moffat says

      Substance over form says that the financial statements should show the financial reality of something rather than the legal position.
      In certain circumstances leased assets may be an example of this.
      Accounting for this is not relevant for Paper F3 (not until Paper F7), however basically what happens is that it will appear as an asset (because it is used by the business just as if they owned it) and depreciated as normal.
      At the same time there is a liability on the balance sheet – the logic being that leasing and making the lease payments is effectively the same as having borrowed money to buy the asset and then having to make repayments on the money.

      Again, it does not apply just to any leased asset – it depends on the circumstances – and all that is required for Paper F3 is knowledge of the first sentence of this answer.

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