in question 3d june 2014, the answer says that minco should capitalise the costs of the floor inaccordance with IAS 16 Property, Plant and Equipment and amortise these costs over the six years of the lease.
This is an operating lease , so therefore minco doesnt hold the building, i dont understand why minco would therefore chose to capitalise the cost, shouldnt this be an expense
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june2014 qs 3d exam
I think you have missed the point.
Yes they are leasing the office under an operating lease - however a constructive obligation has arisen
this is a condition of the lease, in that the entity must put the building back to its usual state (covered by IAS 37)
This is result of the entities past action and the fact that the entity has accepted the responsibility of this costs.
Such obligation which has arisen at a start of a contract is recognised at the beginning of the corresponding contract, usually at present value and an unwinding takes place over the term of the lease.
9y ago#2Hi,
Any costs spent on the building are capitlaised, even though the building itself is not capitalised under an operating lease, as they meet the definition of an asset and can be measured reliably.
Thanks
Hi both,
i understand it better now, first time using this threads and it is helping greatly
9y ago#4Hi Dami,
Glad you're using it and finding it helpful. Keep working hard.
Thanks
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