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- January 10, 2020 at 4:40 am
Why is it that we recognise only the capital element of the lease as lease liability and the interest part of it is expensed.
Even the interest will have to be paid in the future years. So why recognising only a liability for the capital element when both the capital and interest part of the lease will have to be paid.
Thanks!January 10, 2020 at 9:17 am
The balance in the SFP represents:
1. Outstanding capital amount.
2. Only interest accrued but not paid to date.
Future interest will be expensed in future periods.January 10, 2020 at 5:50 pm
But still, the interest that will be paid in the future will result in outflow of economic resources of the entity. So why not reconising it as a liability if you already know that you will have to pay this interest?
ThanksJanuary 11, 2020 at 9:31 pm
Well – there you potentially have a conflict between the accruals concept and the ‘balance sheet focus’ of the definitions in the Framework. And the accruals concept wins out……………
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