The main change is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating lease. Lessees should be required to recognize the assets and liabilities arising from leases on the balance sheet. The Board consulted extensively on the approach to lease expense recognition and considered a few alternatives. Though there will not be any financial impact, as the asset is increased along with increase in liabilities, this presentation will give an accurate picture of financial position. Assets are expenditure from which future economic benefits are expected to occur. In an operating lease agreement, the lessee is going to get future economic benefits from the asset. Hence, the same can be recognized and presented. Similarly, as the lessee also has obligations arising from past events, the lease payments are shown as liability. Disclosure in financial statements will not present the financial impact on financial position. Hence, this presentation of asset and liability is more apt.

It is an improvement, as more than disclosure, financial impact is quantified and recognized in financial statements. The liability arises from past events and hence, according to the principles of accounting, it should be recognized. Similarly, asset should also be recognized.

Question:

Companies receive future economic benefits from employees. Should they list employees as assets, and future salaries as liabilities? What is the difference?

Answer rating: 100% (QA)

Employees to be treated as asset or liability both the arguments are listed below As an Asset Employ... View the full answer