Part one – case study

Answering the following questions in essay format.

ACCOUNTING FOR LEASES BY LESSEE

Alan Tan is the CEO for an airline company. The company has a large proportion of its aircraft leased from manufacturers under lease agreements that can be cancelled at any time with minimal penalties. At the end of the period starting on 1 January 2019, looking at the statement of financial position prepared by the company accountant, Joyce Maine, Alan noticed a large increase in the total assets and liabilities.

Not being aware of any major restructuring activities or investments during the period but having heard about a change in the accounting rules governing leases, Alan asks Joyce to prepare a report describing how the changes in those accounting rules affect the company.

Required

Joyce approaches you, a junior accountant, to summarise the changes in the treatment of some leases that caused the large increase in the total assets and liabilities. Provide a short description of those changes to Joyce.