07-22-2009, 07:00 PM
Dears,
If the the sale of asset at Rs. 400,000/- and lease back at Rs. 500,000/- are irrelated transactions in their substance and have not taken place simultaneously with an outright intent of leasing it back then there could be some argument of booking Rs 100,000 as gain on sale immediately and deferring the remaining Rs. 100,000 over the lease term.
However, it appears that the intent of transaction was outrightly to lease it back, therefore, it makes a financing arrangement instead of genuine sales transaction in its essense. The people can distort their financial results through such structured transactions and affect their reported profits through window dressing which has to be addressed by IASs/IFRSs for fair presentation.
Accordingly, in my confirmed view, the entire Rs. 200,000 will be deferred and amortized over the lease term. There should be no two opinions. If there are in some one's view, he should analyze how the financials could be window dressed by such structured arrangements. IFRSs cannot allow misrepresentations.
Section 235 of CO84 can by NO MEANS be invoked in the transaction described by the query irrespective of whatever assumptions are taken. I think there is no need to go in details for proving the point. A simple reading of section 235 will make it clear. Further, finance lease transcations have to be accounted for under IAS-17 and there is no need to specify it while raising any query. Contrary to it could be no assumption at all.
I could not help replying this query, so please no offense should be taken by any one. I acknowledge all the good work done by Faisal.
Regards,
KAMRAN.
If the the sale of asset at Rs. 400,000/- and lease back at Rs. 500,000/- are irrelated transactions in their substance and have not taken place simultaneously with an outright intent of leasing it back then there could be some argument of booking Rs 100,000 as gain on sale immediately and deferring the remaining Rs. 100,000 over the lease term.
However, it appears that the intent of transaction was outrightly to lease it back, therefore, it makes a financing arrangement instead of genuine sales transaction in its essense. The people can distort their financial results through such structured transactions and affect their reported profits through window dressing which has to be addressed by IASs/IFRSs for fair presentation.
Accordingly, in my confirmed view, the entire Rs. 200,000 will be deferred and amortized over the lease term. There should be no two opinions. If there are in some one's view, he should analyze how the financials could be window dressed by such structured arrangements. IFRSs cannot allow misrepresentations.
Section 235 of CO84 can by NO MEANS be invoked in the transaction described by the query irrespective of whatever assumptions are taken. I think there is no need to go in details for proving the point. A simple reading of section 235 will make it clear. Further, finance lease transcations have to be accounted for under IAS-17 and there is no need to specify it while raising any query. Contrary to it could be no assumption at all.
I could not help replying this query, so please no offense should be taken by any one. I acknowledge all the good work done by Faisal.
Regards,
KAMRAN.
