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005-092 - Leases

This paper is a commentary on the treatment of leases. Accounting Standards require that each entity, which is required to prepare financial reports in accordance with the Corporations Law and which is a reporting entity or holds those financial reports out to be or form part of an all purpose finan ...Read more
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  • Description
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This paper is a commentary on the treatment of leases. Accounting Standards require that each entity, which is required to prepare financial reports in accordance with the Corporations Law and which is a reporting entity or holds those financial reports out to be or form part of an all purpose financial report, should account for leases in accordance with Accounting Standard AASB1008.

The common accounting treatment for leases for many small/medium enterprises is that the lease payments are written off as an income tax deduction as they occur. Whilst this is acceptable under the Accounting Standards, it is not considered to be appropriate accounting treatment and it is recommended that leases be capitalised in accordance with the Accounting Standards.

The paper sets out the treatment of leases on the basis that they are to be capitalised and contains comments on:

  • Lease Documentation
  • Residual Value
  • Composition Of A Lease
  • Accounting Treatment
  • Financial Accounts
  • Taxation Treatment
  • Treatment Of Residual Amount
  • Reclassification Of Asset If Residual Amount Paid