The Main Concerns About the Current Accounting Standard Relating to Leases

question 5

Multiple Choice

The main concerns about the current accounting standard relating to leases include:
I the dividing line between finance and operating leases is hard to define in a principled way
II obligations under cancellable operating leases are little different from borrowings, but are not recognised as liabilities
III assets used in the business that are held under operating leases are not shown on the statement of financial position, thereby understating return on assets
IV leases are scoped out of the financial instruments standards, leading to inconsistencies between leases and similar transactions

• A) I and II
• B) II and III
• C) III and IV
• D) I and IV

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Definitions:

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Marginal Costs

The additional cost incurred when producing one more unit of a particular good or service.

Trading Partner

A country or organization that engages in import or export transactions with another entity, indicating a regular commercial relationship.

Manufacturing Jobs

Positions in the production of goods within an industrial setting, often involving machinery and labor.