Taylor Leasing Ltd (TLL) is the ownerlessor of some high-quality apartment blocks, which have pleasant surroundings of
Question:
Taylor Leasing Ltd (TLL) is the owner–lessor of some high-quality apartment blocks, which have pleasant surroundings of parks and gardens and are only a short walk to a busy shopping centre and to public transport.
In order to achieve tax benefits, the company leased all units in the blocks to its customers for a period of 20 years, requiring all customers to pay for the lease with a lump sum in advance. All units have been leased and TLL has received approximately $60 million in cash.
Since the customers (lessees) were to receive the benefits of their lease over a 20-year period, TLL decided to account for the cash received in advance as deferred lease income, and to use a straight-line basis over 20 years in order to recognise revenue. In TLL’s accounts at the end of the year, the deferred lease income was disclosed as a non-current liability.
ASIC objected to this treatment and argued that the item in question should be disclosed in the company’s statement of financial position/balance sheet not as a liability but as a separate amount after total equity.
Required
(a) Using the Conceptual Framework as a guide, discuss whether ASIC’s proposed treatment of the $60 million in the financial reports of TLL is correct, stating your reasons. Consider also whether TLL’s program for recognising revenue is appropriate.
Step by Step Answer:
Accounting
ISBN: 9780730382737
11th Edition
Authors: John Hoggett, John Medlin, Keryn Chalmers, Claire Beattie