Beruflich Dokumente
Kultur Dokumente
Finance lease
Accounting treatment of assets under finance lease is dealt with in AS-19, Leases. Lessor :- The one who gives asset on lease. Lessee :- The one who takes asset on lease. A lease is an agreement by which the lessor conveys to the lessee to use the asset for a agreed period of time, in return for a payment or series of payments.
Finance lease
The lease is known as a finance lease if the risks & rewards arising from ownership of the asset are also transferred. Risk may include possibility of technological obsolescence. Rewards may include gains from appreciation in value & sub-leasing rights.
Finance lease
Ownership is not transferred in case of a lease. Ownership might get transferred at the end of lease period if stated so in the lease agreement.
In case of a finance lease, even though the ownership is not transferred, the benefits of the asset are used by the lessee. Thus, prudence (substance over form) says that leased assets should be accounted for as if they are owned by the lessee.
Thus, leased asset is recognised as asset in the balance sheet. Plus, the lease is also recognised as a liability in balance sheet. The P & L A/c is debited by the financial charge (interest) of the lease and also by the depreciation charged on fixed asset.
Whichever is lower:
Depreciation on leased assets is not recognised The lease rentals are treated as revenue expenses and allowed in full computation of taxable income.
Intangible assets
Intangible assets are non-monetary assets without physical substance, held for use in production or supply of goods or services, for rental to others, or for administrative purposes.
Intangible assets
Like:
Goodwill Copyrights, patents and other industrial property rights, service and operating rights. Know-how: design, prototypes, new processes or systems, recipes, formulae, models. Licenses and franchises. Computer software Mastheads and publishing titles Motion picture films
Intangible assets
Intangible assets acquired in a business purchase (AS-10). Internally generated intangible assets (AS-26).
Goodwill
According to AS-10, whenever a business is acquired for a price which is in excess of fair value of the net assets of the business taken over, the excess is termed as goodwill.
Goodwill
Business connections Brands and trade names Reputation Quality of employees Internal systems Loyalty of customers, etc.
In business acquisition, excess price paid leads to goodwill intangible. But, at times part of this excess amount may be on account of other intangible assets.
Internally generated intangible assets are those expenditures which are incurred to generate future economic benefits. Such assets are not shown as intangible assets in the balance sheet but are understood or implied to be intangible asset. E.g.: advertising, training, startup, research & development, etc. Such expenses are divided into two phases:
Research Development
Research refers to the original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge. Development is the process of application of research findings which actually leads to producing better materials, products, processes, systems, services, etc.
is
not
Intangible asset arising from development should be recognised if the enterprise can demonstrate all of the following: Technical feasibility Intention to use or sell the asset Technical, financial and other resources to use the asset. Ability to measure the expenditure incurred on its development. How asset would generate probable future economic benefits.
Cost:
Cost of an internally generated intangible asset is the total of expenditure incurred on it from the time it is first recognised as an intangible asset.
Amortization
Amortisation is the systematic allocation of depreciable amount of an intangible asset over the useful life of the asset.
Impairment of Assets
Impairment of assets is dealt with in AS-28, impairment of asset Some times the assets of a company become less useful or productive due reasons like technical obsolescence, higher competition, change in consumer preference, lower demand, etc.
Impairment of Assets
In such cases, market value of such assets would considerably fall in comparison of the NBV. Thus continuing to record such assets at high values is not prudent as it would not reflect the true and fair financial position of the firm. Thus it becomes necessary to calculate the impairment loss.
Impairment of Assets
An asset is said to be impaired when it is recorded in the balance sheet at an amount higher than its recoverable amount.
Higher of
Impairment of Assets
Value in use
Present value of estimated future cash flows expected to arise from the use of the asset and from its disposal at end of its life.
The impairment loss will be shown as a charge in P & L A/c. And asset and its depreciation would now be shown at the recoverable amount instead of NBV.