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Hello Sir….
Question No 1
Can you please tell me that why do we put the initial value of lease in Year 1 at its Present value??? Whats the reason of doing it???Question No 2
Also whats the point of doing it when we have to reverse that discounting using Amortised Cost model???Hi,
Question No.1 – this is an application of the rules in the accounting standard and is looking at the amounts we are obliged to pay over the lease period
Question No.2 – the amortised cost treatment is reflecting the payment of the lease and accruing the interest on the lease. As the lease evolves each year, the value of the liability reduces as we owe less. It also highlights that we accrue less interest each year as the liability falls, a great example of the matching concept.
Thanks
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