Statement Of Financial Position Key Ratios -Myassignmenthelp.Com

Question: Discuss About The Statement Of Financial Position Key Ratios? Answer: Introducation As mentioned in the given case the chairperson of IASB is of the view that the former accounting standard for particularly leases did not necessarily reflect economic reality. As such under present accounting necessities, over and above 85% of the leases are referred to as operating leases and are not registered on business concerns balance sheet. Distinctly, the accounting unit necessarily does not replicate economic reality. Regardless of operating leases that is presented off the firms balance sheet, there remains no doubt regarding the fact that they generate authentic liabilities. Particularly, during the period of worldwide financial crisis, there were certain leading retail chains that went insolvent as they were not capable to adjust rapidly to the novel economic reality (Choubey 2016). Also, the firms had considerable operating lease commitments in the long-term on the firms stores, and nevertheless had deceivingly lean balance sheets. However, in actual fact liabilities pre sented off the balance sheet lease were more than 66 times higher than debt pronounced on firms balance sheet. In addition to this, the present accounting for leases directs towards a inadequacy of comparability. As per the existing status, the corporations operating under IFRS essentially lease assets as well as commitments that amounts to nearly $3.3 million, and out of that nearly 85% are operating leases. Again, in a bid to compensate the same, the financiers mainly comprise of the projections that are not consistent, that are not in agreement, incomparable as well as inaccurate (Edeigba and Amenkhienan 2017). Thereafter, this is nearly cited that previous accounting standard failed to replicate economic reality. As per the previous accounting standard, most of the corporations have registered around 85% of leases particularly realising the specific amount under operating leases. In particular, it did not reflect the ones stated under statement of financial position. Although the operating leases have not been registered under the pronouncement of financial position, there has been generation of firms actual liabilities (ztrk and Seremeli 2016). Therefore, during the period of financial crisis, there are certain retail corporations that have crumpled, as they failed to adjust quickly to economic reality. Also, the business concerns also had considerable commitments linked to the operating leases of the long term period. However, pronouncements of financial position of the firm have essentially been lean misleadingly. Therefore, the lease liabilities of the business concern under the arrangement and scheme of off balance sheet essentially been 66 times more in comparison to the values of the d ebt mentioned in the balance sheet assertion. The previous system of accounting associated to lease could lead to failure of comparability (ztrk and Seremeli 2016). Essentially, the aviation sector accounts most of the leases specifically in the structure of operating leases and the documentation is not carried out under the statement of financial position. Therefore, Airline Corporation engaged in the process of leasing all the aircraft fleet is necessarily not similar to that of the competitors buying all fleets. Nevertheless, the financial necessities of both categories of airline corporations are not unrelated. As such, this indicates towards the fact that there is nonexistence of level playing field among different airline corporations (Marshall 2016). In addition to this, with the initiation of novel standard, all kinds of leases can be specifically accounted as assets and leases would help in maintain documentation in the liability form. Therefore, it can be hereby approximated that the identified issues can be addressed and resolved. Any kind of alteration in the standard of accounting is likely to exert impact on approximately half of the business concerns that are listed and are not anticipated to be popular with all the corporations. However, the primary reason behind the same is that the alterations might perhaps direct the way towards controversies. Consequently this could result in development of warning effects associated to negative economic circumstances and costs related to the alterations in the specific system (Marshall 2016). For instance, banking covenants along with contractual agreements attached with the financial statements of the corporation for instance profit targets to arrange bonus disbursements to the members of the staff or else gearing ratio might possibly be needed for acquiring revisions before the process of insinuation of novel standards. Additionally, each segment of business calls for the need of obtaining deep insight of the impact of alteration that includes information technolog y, human resource, finance as well as finance department of financiers of investor associations and assets procurement (Choubey 2016). However, all these causes might perhaps lead to lack of recognition of new accounting standard. IFRS 16 will necessarily not alter the nature and characteristics of leases and that can be considered as an accountancy necessity. This implies that leases will still remain to be attractive and supple sources of finance for corporations for corporations that necessarily do not intend to put up with the risk of owning equipment/plant/premises. Whilst there will be a cost in the process of execution of IFRS 16, corporations are not required to put leases worth below $5000 or else with a duration not more than 12 months mentioned in the balance sheet (Choubey 2016). This is said to shield smaller corporations from some of expends. According to the new standard of accounting, it can be observed that most of the corporations are treating operating leases as off balance sheet specific. Accordingly, the financiers along with other users of financial pronouncements fail to acquire an effectual insight of financial circumstance of the corporation (Marshall 2016). Essentially, this limits th em to compare the corporations leasing assets with the purchasing assets of the corporation. Nevertheless, the novel standard is approximated to update the standard IFRS 16, plus it is expected that it would necessarily outweigh the costs, that again would direct towards greater informed decisions associated to investment (Choubey 2016). In actual fact, this would be reflected in the lease against buying decisions in an effectual manner on the part of the management. References Choubey, S., 2016. IFRS 16 Leases.The MA Journal,51(2), pp.91-94. Edeigba, J. and Amenkhienan, F., 2017. The Influence of IFRS Adoption on Corporate Transparency and Accountability: Evidence from New Zealand.Australasian Accounting, Business and Finance Journal,11(3), pp.3-19. Marshall, D., 2016.Accounting: What the numbers mean. McGraw-Hill Higher Education. ztrk, M. and Seremeli, M., 2016. Impact of New Standard" IFRS 16 Leases" on Statement of Financial Position and Key Ratios: A Case Study on an Airline Company in Turkey.Business and Economics Research Journal,7(4), p.143.