Interpreting Accounting Information Decision Making †Free Samples

Question: Discuss about the Interpreting Accounting Information for Decision Making. Answer: Introduction: In accounting, sales and leaseback is considered as a quick way to build up funds. In this process, financial entity continues with is ownership right even after selling out of the property by immediate leaseback (Longinidis and Georgiadis 2014). Four primary benefits that could be identified from Lion Nathan case study are- attainment of capital at a lower borrowing rate, no recorded agreement in financial balance, maintenance of asset controlling and receiving benefit of taxation from leasing expenditure. When Lion Nathan sorts to adapt Sales and Leaseback procedure then the concerned corporation will be able to retain its control over pubs. The operating activities of the pub remain unaffected with this kind of trading. No matter whether the ownership retain in the form of original owner or as a lessee, it enhances the bargaining power. In times of financial leasing, payment of interest and depreciation of fixed capital are considered as operational expenses and hence, this tends to increase tax protection and generate a higher net profit. Similarly, payment of lease in the process of operating lease is also viewed as a part of financial expense (Ashiya 2015). The prior knowledge base of the property helps the owners of Lion Nathan to have an additional edge of benefit while negotiating on lease payment. There is no long-term liability of the company as reflected from solvency performance. Australian Accounting Standard AASB 117 defines lease as an agreement where a property owner termed as lessor provides right to another person known as lessee to access the asset for a certain period on account of a agreed payment. Finance leases differs from operating lease in terms of transferring all associated risk and benefits from original owner to lessee (Deegan 2016) . In financial leasing, lessee enjoys the right to have possession on the asset even after completion of lease period. Given the case of Lion Nathan, it considers market expansion by selling one third of its portfolios for funding acquisition of hotels over a period ranging between twelve to eighteen months in Victoria. The operation of hotels is a part of companys Victoria strategy. It means the company retains its ownership and control over their main venture that is portfolios of pub. Lion Nathan conducts proper financial leasing for assuring shareholders profit and obtains all the benefits from pubs operation. Once the Victoria strategy completes it owns back all is property rights. In reference to AASB 117 (Paragraph 59), it is indicated that in situation where the sales of pub generates any prospective gain or loss for Lion Nathan, then it should not be recognize immediately (Henderson et al. 2015). Rather it would be deferred and amortized over the leasing period. In financial leaseback, Pubs are used as a source of raising capita and hence is viewed as providing security rather than completely sold. The accounting standard thus indicates that it is not right to consider benefits from sells of non-current assets as an income. As an instance, if the concerned firm engages in a lease contract over one year using the method of straight line then gains from the leasing contract can be equally divided over the leasing term (Chambers 2014). In such sales and leaseback activities as mentioned in Lion Nathan case above, the company should account gains obtained from selling of pubs before it occurs in the comprehensive income statement. In a financial lease, AASB 117 requires that all benefits and risks should be transferred to the lessee. The measures for depreciation and disclosure of it should be in line with the requirement of AASB 138 and AASB 116 (Collier 2015). This implies assets in leasing contract should be depreciated over the term of leasing depending upon the ownership of lessee. In reference to this, the accounted depreciation of building for Lion Nathan should be separated in two processes. At times of selling, the cumulative depreciation amount for building is closed to its carrying amount. It needs withdrawal from the financial position statement. In case, where the firm sustain its ownership on the building then asset depreciation should be accounted for the entire useful life instead of only for leasing term. The annual depreciation expenditures that are recalculated after the end of financial year is subject to disclosure of comprehensive income statement in the next year. Reference Ashiya, N., 2015. Determinants of Potential Seller/Lessee Benefits in SaleLeaseback Transactions.International Real Estate Review,18(1), pp.89-112. Chambers, R.L. ed., 2014.An accounting thesaurus: 500 years of accounting. Elsevier. Collier, P.M., 2015.Accounting for managers: Interpreting accounting information for decision making. John Wiley Sons. Deegan, C., 2016.Financial accounting. McGraw-Hill Education Australia. Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015.Issues in financial accounting. Pearson Higher Education AU. Longinidis, P. and Georgiadis, M.C., 2014. Integration of sale and leaseback in the optimal design of supply chain networks.Omega,47, pp.73-89.