Objective And Scope of AS-19A | Free Articles Directory

Objective And Scope of AS-19A

Posted by Rona on March 6, 2012

AS-19 is mandatory in respect of all assets leased during accounting periods commencing on or after 1-4-2001. Leasing is a prime example of the use of the principle ?substance over form? to record a transaction. Though in legal form, the lessor is the owner, in substance, the lessee enjoys all the rights as an owner of the asset. Leasing finance leases) therefore in substance is a financial loan from the lessor to the lessee. AS-19 requires this common mode of off balance sheet finance to be brought in the books q>f the lessee as an asset and a corresponding borrowing. AS-19 should be applied in accounting for all leases other than (a) lease agreements to explore for or use natural resources, such as oil, gas, timber, metals and other mineral rights, and (b) licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights, and (c) lease agreements to use lands. A characteristic of land is that it normally has an indefinite economic life and, if title is not expected to pass to the lessee by the end of the lease term, the lessee does not receive substantially all of the risks and rewards of ownership. A premium paid for such a leasehold represents pre-paid lease payments which are amortised over the lease term in accordance with the pattern of benefits provided. This Statement applies to agreements that transfer the right to use assets even though substantial services by the lessor may be called for in connection with the operation or maintenance of such assets. On the other hand, this Statement does not apply to agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the other.

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