Advanced Accounting Theory & Practice Assignment

Advanced Accounting Theory & Practice - Assignment Example In addition, IAS also prescribes for leases within the financial statements of both the lessees and lessors (Barth et al., 2008). The prescriptions capture both financial leases and operating leases. The main characteristics of IAS 17 include the classification of leases, both the finance leases and operating leases, within financial statements of the lessor and the lessee. The scope section outlines the lease agreements for which IAS 17 is applicable. Additionally, the section also lists various agreements in which IAS 17 does not apply. According to paragraph three of the Standard, agreements transferring an asset’s right-of-use require application of IAS 17 (Selling, 2013). The need for the lessor to provide considerable value of services with regards to the operation and maintenance of the leased assets does not nullify the application of IAS 17. Paragraph two of IAS 17 lists four instances that the standard may not be applied (IFRS Foundation 2011). The agreements are contracts for services lacking a transfer of the asset’s right to use (Selling, 2013). In classifying leases, the International Accounting Standards Board (IASB) took into consideration of both the lessee and the lessor (Reinstein & Weirich, 2005). Similarly, IASB also took into account the extent to which the lessee or the lessor may accrue subsidiary rewards from the possession of a leased asset. The risks taken into account include the possibilities of losses arising out of technological obsolescence or idle capacity. In addition, the risks also include potential losses due to digression in return as a result of varying economic conditions. On the other hand, the rewards are characterised by the prospect of a profitable operation over the economic life of the leased asset (Kirsch, 2012). The rewards also comprise the gains arising from appreciation in value of the leased asset. Additionally, the rewards also include any realisation of some residual value. A lease is