08-15-2009, 03:13 AM
Dear Waqas
IFRIC 4 is mainly purposed to account for such arrangement as finance lease. This is the biggest issue being faced by IPPs (power plants) of Pakistan including KAPCO and HUBCO. You are advised to read the financials of these entities in upcoming periods.
As far as bargaining of huge rentals is concerned, mind it such a weak practice falls out of the limits of good corporate practices and there are local as well as international pronouncements to address it. Examples are IAS 24, IAS 36 and transfer pricing approvals etc in case the pricing is not determined at fair values.
In the example quoted above, fair value of asset is almost equal to the present value of rentals and implicit interest cost is also quite reasonable. You cannot term it as a problem of bargaining.
Your example of 20 and 3 also does not apply in this case. Don't forget it is 5 out of 8 and not 3 out of 20.
IAS 17 stipulates that lessee bears loss on cancellation of lease and to my apprehension in the example it really does since 50 percent of TLP is not a negligible amount. Mind it, this is penalty and not the rental. We cannot mix up the both. I referred it becoz this makes clear that cancellation may not be feasible and would be a least practicable option.
Criteria of IAS 17 is given by Faisal. We should develop a habit of reading things carefully. Risk and reward incidental to ownership has also been explained. I think there is nothing left to feel confused about.
Bold italic contents of IASs are the major guidelines (and not the framework) and cannot be interpretted without reading rest of explanatory portion. All paragraphs of an IAS or IFRS are the part of the standard. Yes, bold italic sets the real guideline. However, one by no means keep rest of paragraphs out of a given IFRS/IAS.
Framework of IAS/IFRS is given in all IFRS books seprately and is in fact the holy book for developing any such pronouncement. As no Hadees against Holy Quran can be accepted. Similarly no IFRS/IAS against Framework can be developed. I guess you need to study the framework.
Faisal,
You saved my time. Thanks a lot.
Regards,
Kamran.
IFRIC 4 is mainly purposed to account for such arrangement as finance lease. This is the biggest issue being faced by IPPs (power plants) of Pakistan including KAPCO and HUBCO. You are advised to read the financials of these entities in upcoming periods.
As far as bargaining of huge rentals is concerned, mind it such a weak practice falls out of the limits of good corporate practices and there are local as well as international pronouncements to address it. Examples are IAS 24, IAS 36 and transfer pricing approvals etc in case the pricing is not determined at fair values.
In the example quoted above, fair value of asset is almost equal to the present value of rentals and implicit interest cost is also quite reasonable. You cannot term it as a problem of bargaining.
Your example of 20 and 3 also does not apply in this case. Don't forget it is 5 out of 8 and not 3 out of 20.
IAS 17 stipulates that lessee bears loss on cancellation of lease and to my apprehension in the example it really does since 50 percent of TLP is not a negligible amount. Mind it, this is penalty and not the rental. We cannot mix up the both. I referred it becoz this makes clear that cancellation may not be feasible and would be a least practicable option.
Criteria of IAS 17 is given by Faisal. We should develop a habit of reading things carefully. Risk and reward incidental to ownership has also been explained. I think there is nothing left to feel confused about.
Bold italic contents of IASs are the major guidelines (and not the framework) and cannot be interpretted without reading rest of explanatory portion. All paragraphs of an IAS or IFRS are the part of the standard. Yes, bold italic sets the real guideline. However, one by no means keep rest of paragraphs out of a given IFRS/IAS.
Framework of IAS/IFRS is given in all IFRS books seprately and is in fact the holy book for developing any such pronouncement. As no Hadees against Holy Quran can be accepted. Similarly no IFRS/IAS against Framework can be developed. I guess you need to study the framework.
Faisal,
You saved my time. Thanks a lot.
Regards,
Kamran.
