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Finance and Accounting Essay Essay Example

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Finance and Accounting Essay

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In addition to such disclosures, there is an enhancement of transparency concerning the leverage of the lessee.The ED proposals demands that leases be classified as either Type A or Type B leases depending on whether they are property such as land and building and land or the leases are other than property such as equipment, aircraft, cars or tracks. For Type A leases, the right of use of the asset and the lease liability is recognized and the unwinding of the discount will be recognized separately from the amortization of the right to use. Type B leases on the other hand are recognized as Type B with a difference being on the recognition of the unwinding of the discount which is recognized as a single lease cost (Walton 2009).Under the proposals for Type A leases, the lessor will stop recognizing the asset and therefore recognize a right to receive lease payments and the residue of the assets. The lessor will also recognize the unwinding of the discount on both the residue of the assets and the lease receivable. Any profit relating to the lease will be to the advantage of the lessor. For type B leases the lessor will continue recognizing the underlying asset and recognize the lease income over the lease term measuring the value of the assets and the liabilities arising from a lease, variable lease payments would be abandoned and an inclusion would be made of optional periods if the values are of significant economic incentives and an option of being furthered (Fields 2002). For those other than he leases with this option, an accounting policy election is made by both the lessor and the lessee. A company is also obliged to make disclosures to enable the ease in use by users of financial statements in terms of ease of knowing the amounts, the period and how uncertain it is for cash flows arising from such leases (Hines 1999).Compass group is a food services and support services company that operates in over 50 countries in the world. The proposed changes by the Exposure Draft ED/2013/6 Leases have many impacts on its financial statements given the importance of leases in terms of their

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