Discuss problems arising from IAS 17 Essay Example | Topics and Well Written Essays - 750 words

Discuss problems arising from IAS 17 - Essay ExampleFirstly, restructuring of the plus at the inception of betroth treaty creates more amounts recorded in the fixed assets and decreases the asset earnings. If the current value of total future lease obligations upsurges, it affects debt equity ratios and liquidity solvency ratios. Secondly, identification of entire forthcoming lease payments as obligations may cause breaching of debt agreements causing debts to become due immediately. Similarly, reporting profits may decrease when depreciation and interest expense is more than rental expenses. This makes it difficult for the IAS 17 to be fully implemented in international accounting.Whats more, it is impossible to deduct interest expense for tax purposes. The principle is inapposite in service contracts like copyrights and patents. It is usually applicable to tangible assets. ISA 17 is irrelevant and inapplicable to the service part of the contract as the guideline does not transf er the right to use the property.Additionally, variety of a sublease into an operating lease may lead to income incongruity. Categorization of a sublease into operating lease will lead to a leaser recognizing amortisation of interest expenses and their right to use the property leased (Monson, 2001). Hence, the leaser may recognize rent outcome in a manner that is considered as evenly paste during the entire lease period (Young, 2011). The transitional leaser will, thus, incur a forfeiture due to the earlier murky arrangements previously made. Also, this mushroom from interest and depreciation that increases proceeds of operating lease in earlier periods causing a swap in later years from interest rates decreases. A situation arises down the stairs current standards where the head lease is a finance lease and sublease is operating lease, but the IAS 17 proposals will lead to arrangements to classify head lease currently as an operating lease. The staff may also not propose to a djust and amend