Discuss About The Leasing Standard Changed And What Effect?
The new IRFS system has been amended and it will change many procedures firstly the new lease standard will no more include the operating leases under this. Secondly the leases will not be capitalized in the balance sheet which will be recognized as the right to use asset and therefore it will arise a lease liability for the obligation. Thirdly the new lease system will no more include the rental expenses and the new form of leases will incur the front end loaded expenses which will comprise of the interest and lease liability. Fourthly the new lease system will measure the right to use on the asset and lease liability and will be required to have to make options for payments period which all the organization must exercised (Andon, Baxter and Chua, 2015).
The new lease standard has a huge impact on the stakeholders of the Sigma Healthcare Limited as well as the industries in total. The new standard will enable in the higher of the level of the interest rate and the interest cost too. This will impact the industries and Sigma will be operating and thus it will have an impact on the materials on their balance sheet. The retailers will have their shops in the mall and thus it will include the renewal options of the company. Then it will have an impact on the mining services and therefore it will help in the expensive equipment held in the operating leases. In the industry it will be required to capitalize the amount in the balance sheet and for the industry. For the pharmacy industry the amount is also to be capitalized in the balance sheet for the aircrafts.
If the company Sigma healthcare is called for lease payments which are given for these assets and it will be recognized on a straight line basis over the lease term or another systematic basis if more representative of the pattern of the lessee’s benefits. Leases are taken for many assets both for movable as well as immovable and they are also subleased as per the new standards of accounting.
The Australian Accounting Standard16 on lease was introduced on January 2016 and it will be effective from the year 2019 therefore all the entities which are falling under this standard shall become effective. Thus it will have a great impact on the stakeholders of the Sigma healthcare limited and for the lessees who have the operating lease which will come to the balance sheet together with the liability. The new standard in Sigma healthcare comes with a standard that the finance and operating lease remains unaltered. It is seen that the AASB 16 have the disclosure of the statements and the increase in the EBITDA margin (Cummings and Worley, 2014). The standard has a far reaching impact and it has a big impact on the lessees system and control. The whole system will eliminate the off balance sheet accounting which will capture the data under the previous accounting.
The effect that AASB 16 have on your chosen stakeholder’s income statement and balance sheet and cash flow statement of the company.Its effect for users of your chosen stakeholder’s financial statement (Duke, C.R., 2017).
Leases in Sigma healthcare limited which is a consolidated entity and all the risks and the benefits of the ownership is said as finance lease. Rests of the leases are known as operating leases. Assets are subject to finance leases that are capitalized. The initial amount of the lease asset is that the lower of the fair value of the asset which presents the minimum lease payments. The corresponding liability is represented as the future rental obligations out of the net of finance charges. Lease assets are amortized on the basis of straight line basis over the life of the relevant lease or, where it is likely the consolidated entity will obtain ownership of an asset, the life of asset. Lease liabilities are reduced by repayments of principal. The interest components of lease payments are charged against profit or loss (Habidin et al , 2016).
Operating leases are what which is not capitalized. Operating lease payments are charged to profit or loss as incurred on a straight line basis. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as liability.
The aggregate benefits of incentives is recognized as a reduction of rental expense on a straight line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed (Halloran, 2014).
The lease documents of the Sigma Healthcare Limited will result in the following ways. The lease standard will have a great affect on the following ways. The lease means that
For the identified asset which has been taken on lease and the lease contract have an effect on the identified asset. The lease shall convey the right to both the lesser and the lessee to use the assets. If the assets is conveyed the right is conveyed for a particular period of time.
The new AASB 16 has a huge impact on the new standard. The change made due to the changes in the standard does not only have an impact on the balance sheet of Sigma but also have a huge impact overall. Thus the lease expenses that will be front loaded for many of the assets. The new information that will be required which will support the determination of the new judgments. The new information will be required which will help in determination of the calculation which will be required for the calculation of the leased asset. The new accounting model of the company will help in the changes in financial metrics and key performance indicator and therefore introduce the volatility of the balance sheet and the profits or loss due to the measurement (Seve, 2016).
In case of the changes in the financial reporting in the AASB 16 and it also have a huge business-wide impact which is including the modifications that are made in the management of the Sigma Healthcare. The new leasing system that will be introduced in the AASB shall be able to capture all the data and then will perform the calculations. It will help in the debt covenants and the credit rating that is given to the new debt on balance sheet. The Impairment of tests and the tax affect in the company will have the accounting and that the given increase will have an effect on the assets and liabilities of the organization (Scholten et al ,2017).
The lease standard will have the requirement of the ROU and the lease liability which will be used in the inputs and which may not be captured in the company’s system and thereby helps in the process and controls. In the company Sigma these inputs will be subject to the reassessment and the recalculation and thus it will help in the asset and liability of each of the reporting period
The new leases standard will also results in changes and also for to accounting for subleases and then the sale and leaseback transactions and that will be outline the increased disclosure requirements. For subleases of the asset and then the intermediate lesser will be able to recognize the head lease as a lease liability and ROU of the asset will make an assessment using the same criteria as that mentioned in the AASB 16.It will help in determining whether the sublease will help in the operating or finance lease (Williams and Bastian,2016).
References
Andon, P., Baxter, J. and Chua, W.F., 2015. Accounting for stakeholders and making accounting useful. Journal of Management Studies, 52(7), pp.986-1002.
Burkins, A.G., 2014. The Possible Impact of International Financial Reporting Standards for Local Government Entities (Doctoral dissertation, Walden University).
Cummings, T.G. and Worley, C.G., 2014. Organization development and change. Cengage learning.
Duke, C.R., 2017. How Healthcare Accounting Adapts to Lean Practices.
Habidin, N.F., Shazali, N.A., Ali, N., Khaidir, N.A. and Jusoh, O., 2016. The impact of lean healthcare practice on healthcare performance: the mediating role of supply chain innovation in Malaysian healthcare industry. International Journal of Critical Accounting, 8(1), pp.79-93.
Halloran, J.L.H., 2014. Accounting technologies and new public management: a field study in a NSW public school.
Patrício, M.S.F., 2014. Donations of non-financial resources: The motivation and consequences of measuring and accounting for it (Doctoral dissertation).
Seve, F., 2016. An examination of the impact of the changes to regulations affecting the scope for income classification shifting in Australia.
Scholten, R., Lambooy, T., Renes, R. and Bartels, W., 2017. Accounting for Future Generations. Does the IFRS Framework Sufficiently Encourage Energy Companies to Reflect on Climate Change in the Valuation of Their Production Assets, Taking into Account the New Initiative of the Task Force on Climate-Related Financial Disclosures? An Exploratory Qualitative Comparative Case Study Approach.
Williams, T.R. and Bastian, A., 2016. Introduction to Concepts in Quality, Value, and Safety for Health Care. Quality and Safety in Radiation Oncology: Implementing Tools and Best Practices for Patients, Providers, and Payers.
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