Reference no: EM132838191

Global Perspective on Accounting Issues - Case Study

• South British Company is a solar energy company located in the southern part of the United Kingdom. The company operates in generating electricity, which is then sold to local towns and villages. Recent technological advances have led South British Company to consider replacing its exiting solar panels with high-tech micro-wafer panels that produce five times the amount of electricity as the old panels. On January 1, 2020, South British Company decided to lease 2,500 of the new high-tech panels from EuroLease Company. The two companies decided that the lease term is 5 years with yearly lease payments of $1,291,326 starting on January 1, 2020 and then each December 31 thereafter. The details of the agreement indicate that the interest rate agreed upon by the two companies is 8%. Additional details suggest that the useful life of the solar panels is six years with no residual value.

On the date of signing the contract between the two companies, the directing manager of EuroLease told the representative from South British Company the following:

1. "It is interesting that you would want to lease these high-tech panels at this time. As you may know, an American company called New York Solar leased the exact same panels today. Their lease agreements are the same as yours except that the lease term is only 4 years."

Required:

Problem 1: Discuss the major differences between GAAP and IFRS with regard to the accounting for "leases".

Problem 2: With respect to leasing the high-tech panels, describe the amount and nature of expenses that South British Company and New York Solar will record for the year 2020.

Problem 3: If South British Company and New York Solar had the choice to select accounting standards to use for this lease transaction, which standards would provide the most benefit to each company? Your discussion should focus only on how choosing a set of standards would affect the leasing situation that is mentioned above.