You’ll need to be able to calculate the current liability of the lease obligation separate from the long-term liability
Calculate the obligation at the end of the current year, calculate the obligation at the end of the following year, the difference is the current liability and the obligation at the end of that following year is the long-term liability
OK?
NB IAS17 no longer exists and is not examinable – the chapter is left in the notes because the principles still mainly hold good
Nothing as complicated as we used to have to perform when calculating lease interest and long-term / current liability elements of the amounts due to finance lease liabilities
It’s more likely the the examiner will ask a theoretical question concerning the exemptions or the appropriateness of treating an item as a lease
It is possible that calculations will be involved but most probably no where near as detailed as we were used to before the new IFRS
OK?
NB this question should have been on the ‘Ask ACCA Tutor’ forum!
IAS 17 no longer exists – skip this lecture and read the chapter on leases in the free course notes – there’s very little chance of any similar calculation that we used to have in IAS 17
Are there any exam tips for this September sitting please?
And oh by the way, the is this a dagger I see before me is from Macbeth….. I loved that play… you “soliloquyed” it well…. and I love the way you teach.. thank you for the great work
Hi sir, I have a confusion about the concept of taking lower of present value of minimum lease payments & fair value, because in notes it says that implicit interest rate causes the present value of lease payments & residual value to be equal to fair value of asset, so how can the present value of lease payments be higher than fair value of asset & if it is then wouldn’t it be understating the liability if we take the lower of i.e. fair value, in the obligations account, because the liability that exists at present is the present value of lease payments & the interest should be accruing on that amount instead of fair value.
What ever has given you that impression? NO! They are merely best guesses as to which are you could sensibly look at in the course of your last minute revision
We have NEVER claimed that our tips are “accurate” and nor, incidentally, does any other tuition provider
There is only one person in this world that could give you accurate tips and that’s the examiner himself …… and you can bet your last cent that, even were you to plead with him, there is no way that he will divulge that information
Alexsays
Accurate was probably a wrong word choice. I meant to ask if it’s ok to incorporate the tips into last minute preparation.
Great lecture from a great tutor! Thank you sir and please spare some of your time to clarify the following points:
(a) In the reconciliation of Min Lease Payments with PV section of the notes, you mentioned a GROSS and a NET presentation option. Are both of these required or just one of them?
(b) In the GROSS presentation method you refer to “Finance Lease Interest not yet accrued”. Is this interest calculated for the remaining years of the lease term? What exactlly is that?
Bcz it misleads the users of financial statements,finance leases used to be off balance sheet:no asset recorded no liability recorded hence an increase in ROCE and lower gearing so IAS 17 was introduced
I believe it is because in the UK in particular we are followers of a principles based system – rather than a rules based one. In america you have a rules based system meaning that you can in someways legally mislead the users of financial statements as the way that you have presented an item in your accounts is not breaking the law but presents your company in a more favorable light.
Substance over form is a way of adhering to the qualitative characteristics of the conceptual framework. Faithful representation which is related to this substance over form concept requires that ” financial information must not only represent relevant phenomena but must faithfully represent the phenomena that is purports to represent.”
In my head I think of substance as a generic categorization e.g Plant and Machinery is capitalized as a Non Current Asset.
To give an example lets say the law allowed you to categorize something as an orange even though these oranges are not real oranges but round pieces of plastic in an orange skin. What would be the right thing to do for people wanting information about the product you were selling – would it not be misleading to tell people that what you are holding are oranges?
Hi,
What will you do when there is no interest?
Hi , is the additional notes beside the the free notes , as there are no practical example in the notes . or will we be exam on the theory part only?
You’ll need to be able to calculate the current liability of the lease obligation separate from the long-term liability
Calculate the obligation at the end of the current year, calculate the obligation at the end of the following year, the difference is the current liability and the obligation at the end of that following year is the long-term liability
OK?
NB IAS17 no longer exists and is not examinable – the chapter is left in the notes because the principles still mainly hold good
IFRS 16 has replaced IAS 17
Meaning instead we must read IFRS 16 to replace IAS16
“Meaning instead we must read IFRS 16 to replace IAS16”
NO!
You should read IFRS 16 to replace IAS17 (not IAS 16)
Sorry, but this video lecture is completely different from the lecture notes where IFRS 16 is described. Is it still worth to watch it?
Laba diena, Viktorija … there’s no need to apologise
I’ve left the lecture in because it clearly shows how to calculates lease interest where it’s necessary to be calculated
It also shows how to calculate the long-term element of the finance lease year end creditor
If you ignore the chapter heading (IAS 17) everything else is relevant
OK?
If you hit an issue post your question on the Ask ACCA Tutor forum and I shall get back to you
Thank you for your answer 🙂
Will there be any calculations for IFRS 16?
Why would there not be?
below you said there is little chance of similar calculations
What kind of calculations will there be?
Nothing as complicated as we used to have to perform when calculating lease interest and long-term / current liability elements of the amounts due to finance lease liabilities
It’s more likely the the examiner will ask a theoretical question concerning the exemptions or the appropriateness of treating an item as a lease
It is possible that calculations will be involved but most probably no where near as detailed as we were used to before the new IFRS
OK?
NB this question should have been on the ‘Ask ACCA Tutor’ forum!
Ok. Thank you Sir!
I hear the IAs 17 is changed to IFRS 16 and September 2017 is examinable
so help me this issue
IAS 17 no longer exists – skip this lecture and read the chapter on leases in the free course notes – there’s very little chance of any similar calculation that we used to have in IAS 17
how I get free course notes
Go to the F7 home page, scroll down a little way and click on the option (grey box) that says “Download ACCA F7 lecture notes Sep-Dec 2017 exams”
OK?
That line is from Macbeth, Mike.
Tut tut……
Hello Mike,
Are there any exam tips for this September sitting please?
And oh by the way, the is this a dagger I see before me is from Macbeth….. I loved that play… you “soliloquyed” it well…. and I love the way you teach.. thank you for the great work
Thanks very much Mike. Much appreciated.
Great,
Well noted! Mikelittle
Hi sir,
I have a confusion about the concept of taking lower of present value of minimum lease payments & fair value, because in notes it says that implicit interest rate causes the present value of lease payments & residual value to be equal to fair value of asset, so how can the present value of lease payments be higher than fair value of asset & if it is then wouldn’t it be understating the liability if we take the lower of i.e. fair value, in the obligations account, because the liability that exists at present is the present value of lease payments & the interest should be accruing on that amount instead of fair value.
Please put this on the ask the tutor page!
Top Notch lectures on Leasing Sir.
Thank you 🙂
Hi Mike
Are open tuition exam tips accurate?
What ever has given you that impression? NO! They are merely best guesses as to which are you could sensibly look at in the course of your last minute revision
We have NEVER claimed that our tips are “accurate” and nor, incidentally, does any other tuition provider
There is only one person in this world that could give you accurate tips and that’s the examiner himself …… and you can bet your last cent that, even were you to plead with him, there is no way that he will divulge that information
Accurate was probably a wrong word choice. I meant to ask if it’s ok to incorporate the tips into last minute preparation.
Well, sure it is – but if you have recognised other areas that you feel you should brush up on, then do those other areas.
Tips are merely educated (?) guesses and are not to be relied upon! It’s guess-work!
Thanks and another thanks for the wonderful work you are doing
You’re, as always, welcome
Have the video lectures on leases been removed? I can’t see them here
how can i download these videos please any one
You can’t.
Great lecture from a great tutor!
Thank you sir and please spare some of your time to clarify the following points:
(a) In the reconciliation of Min Lease Payments with PV section of the notes, you mentioned a GROSS and a NET presentation option. Are both of these required or just one of them?
(b) In the GROSS presentation method you refer to “Finance Lease Interest not yet accrued”. Is this interest calculated for the remaining years of the lease term? What exactlly is that?
a) either
b) yes
🙂
i meant why accountant prefer to overlook legal form in favour of commercial substance in finance lease?
Bcz it misleads the users of financial statements,finance leases used to be off balance sheet:no asset recorded no liability recorded hence an increase in ROCE and lower gearing so IAS 17 was introduced
why accountant prefer to verlook legal form in favour of commercial substance?
I believe it is because in the UK in particular we are followers of a principles based system – rather than a rules based one. In america you have a rules based system meaning that you can in someways legally mislead the users of financial statements as the way that you have presented an item in your accounts is not breaking the law but presents your company in a more favorable light.
Substance over form is a way of adhering to the qualitative characteristics of the conceptual framework. Faithful representation which is related to this substance over form concept requires that ” financial information must not only represent relevant phenomena but must faithfully represent the phenomena that is purports to represent.”
In my head I think of substance as a generic categorization e.g Plant and Machinery is capitalized as a Non Current Asset.
To give an example lets say the law allowed you to categorize something as an orange even though these oranges are not real oranges but round pieces of plastic in an orange skin. What would be the right thing to do for people wanting information about the product you were selling – would it not be misleading to tell people that what you are holding are oranges?
wonderful and clear explanation Gabby99.
very well explained Gabby99