Intermediate 2 Lease Accounting Comparison Ifrs and Gaap

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IFRS Lease Accounting Assignment International Reporting Accounting Principles Lease accounting is an imperative element for most businesses. The methods utilized for reporting leases in accordance to U.S. GAAP and current IFRS are reasonably similar. Conversely, U.S. GAAP and the proposed IFRS lease accounting standards differentiate. Amendments occurring in consideration to operating leases are with respect to lessees and lessors, lease term, and contingent rents. Traditionally under U. S. GAAP, businesses distinguished between operating and capital/finance leases. If a lease agreement met one or more of a classification criterion it would be considered a capital lease. The criterion includes, a title transfer, a bargain purchase option, a lease term of 75% or more of expected life, and present value of the minimum payments greater than or equal to 90% of the future value of the asset. However, the proposed IFRS standards eliminate operating leases. “Under the proposed model, all leases are essentially treated the same for lessees and in a manner more akin to the traditional capital/finance lease mode” (Deloitte, 2011). Lessees record a right-of-use asset and a corresponding obligation to compensation of payments. Lessors would either follow a derecognition model or a performance obligation model, depending on their level of exposure to “risks or benefits” during or after the lease term associated with the original asset. Furthermore, under U.S. GAAP, the lease term is set forth by the lessor. The lessor owns the asset, therefore he/she determines the lease term. Under the proposed IFRS standards, the lease term is systematically defined as “the contractual term plus renewals, where the lessee has a clear and economic incentive to exercise the option to renew” (Keeler, 2011). It is the estimated longest possible lease term “that is more likely than not

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