Arguments for and against capitalization of all leases Essay

Arguments for and against capitalization of all leases - Essay ExampleInternational Accounting Standards no. 17 states that a lease may qualify either as a capital lease or operational lease (http//www.ifrsclass.com/gaap/ias/ias-17.htm). Under capital lease, all the risks and rewards are transferred to the lessee. To resolve the differences between the two external accounting lastards, both accounting boards agreed to meet to come up with a common stand on capital lease accounting scheduled in 2011. (Kirk 2005 85). The device to capitalize all leases should non be implemented.The proposal to implement the capitalization of all leases should not be implemented. Capitalization entails possessorship. Capitalization federal agency that the friendship has to depreciation the assets. Thus, it would be illogical to implement the proposal to capitalize all leases. The new proposal states that operating leases should be capitalized. Under the current accounting environment, there are m inimum guidelines to be followed forward a lease is capitalized. A lease that does not qualify as capital lease is save as an operating lease. This is illogical because the lessee is just renting (borrowing) the premises and is not buying.Under the capital lease, the lessee arsehole include the capital lease asset as part of ones total assets. This lead create a better financial picture of the company when compared to not having the leased property capitalized. Second, the company can use the capitalized assets as collateral for the processing of the companys new long edge loans. The banks will scrutinize the financial statements to determine if there are enough assets to cover for possible escape of loans or other payables (Elliot & Elliot). This would be illogical because the company does not own the building or facilities rented.Further, the lessee becomes the owner of the property after fulfilling the requirements set forth under International