"This assignment has 2 parts, XXXXXXXXXX% word theory interpretation essay and a response to a practical application of the theory." "The assignment must be typed, use Arial font, 12, to avoid...

ACCOUNTING FOR FINANCE LEASES BY MANUFACTURER OR DEALER LESSORS
ACCOUNTING THEORY INTERPRETATION ESSAY
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Table of Contents
Introduction    3
Accounting for finance lease    3
Conclusion    5
References    6
Introduction
Lease is a contract that entitles an entity to use an asset that is owned by someone else. This help in reducing the capital requirement for specific projects or continuous operations. However, it increases the operating cost for the user of the assets, as the entity has to pay a fixed charge/rent for its usage to the lessor. Finance lease is a lease in which all the rewards and risk related to the assets are not transferred to the lessee. The lessee makes rental payments to cover the original cost of the asset, during the primary or initial period of issue. The lessee is required to show the asset in its balance sheet as per the respective accounting standards.
Accounting for finance lease
The lessee has the right to use the asset for a specified period. Once the tenure gets over, the lessee either renews the contract, sells the asset on behalf of the lessor or returns the asset to the lessor (Bradbury, 2015). In case of manufacturing companies, there is a huge requirement of capital-intensive machines. In such a scenario, the concept of finance lese is highly prevalent. The manufacturer does not own the asset. In fact, it rents it from a lessor to reduce the capital investment. According to views of Kusano et al. (2016), Lease may be for machines, land and other fixed assets. International Financial Reporting Standards (IFRS) 16-‘Leases’, deals with accounting for Leases.
At the time of leasing the asset, the manufacturer should recognise the financial lease asset and liabilities in the balance sheet. The asset should be recorder at fair value of the lease property or the present value of minimum lease payments, whichever is lower. The rate at which the future payments should be discounted is the interest rate specified in the lease. Any direct cost incurred by the manufacturer in procuring the asset is added to the value of asset. As per the opinion of Lubbe et al. (2014), if any leases liabilities are shown in the balance sheet of the manufacturer, then a clear distinction should be made between the current and non-current liabilities.
The manufacturer should partition the lease payment among the interest payment and...