Reference no: EM133000485

Question - Accounting for Leases - Alberta plans to update its production process and the directors feel that data -led production is the only feasible way in which the company can remain competitive. On 1 May 2019, Alberta entered into a lease for a property and the leasing arrangement was established in order to maximise taxation benefits. However, the financial statements have not shown a lease asset or lease liability to date.

A new financial controller joined Alberta shortly before the financial year end of 30 April 2020 and is currently reviewing the financial statements to prepare for the upcoming audit. The financial controller feels that the lease relating to the property should be recognised in the statement of financial position, but the managing director, who did a brief accountancy course ten years ago, strongly disagrees. The managing director wishes to charge the rental payments to profit or loss. The managing director feels that the arrangement does not meet the criteria for recognition in the statement of financial position and has made it clear that showing the lease in the statement of financial position could jeopardise Alberta's future financial performance and the financial controller's bonus scheme.

Note: Assume IFRS16/AASB16 is effective 1 January 2019.

Required -

(a) Discuss briefly how the lease will be treated for accounting purpose under IFRS 16/AASB 16.

(b) Discuss the ethical issues and accounting issues which face the financial controller in the situation above.