Skip to content
ACCA exam results — Are you ready?Chat about it >>

Ask the Tutor ACCA FR

Interpretation of financial statements

HHaya5y ago
Incorrectly treating a lease rental as an operating expense is likely to have what impact on ratios? Please explain the answer...
PP2-D2Tutor5y ago#1
Hi, If it incorrectly treated as an operating expense as a short-term/low value rental then the correct treatment will be to capitalise the asset (right of use) as a lease. There will be depreciation on the asset that will go through operating expenses and interest on the lease liability that will hit finance costs. There will therefore be changes to operating profit and profit before tax through profit or loss. On the SFP there will be an increase in assets and an increase in interest bearing debt. Have a think of what ratios this will impact given what you've now been told. Thanks
Sign in to reply to this topic.