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Revision question on IFRS 16 and IFRIC 4

You work for Zaza Chartered Accountants as a senior financial consultant. The director of one of your clients, Keta Limited heard that there is a new International Accounting Standard IFRS 16 ‘Leases’ that will replace IAS 17 ’Leases’, IFRIC 4 ‘Determining whether an Arrangement contains a Lease’, SIC 15’Operating Lease – Incentives ‘ and SIC 27’Evaluating the Substance of Transactions Involving the Legal
Form of a Lease’ in accounting for lease.
The director has therefore requested you to explain the relevant areas covered by IFRS 16’Leases’.

Explain the accounting treatment of leases under IFRS 16’Leases’ in the financial statements of both lessor and lessee.

(b) The promoters of Santa Enterprises have presented you with their proposed accounting policies of various items of the financial statements for your review. Some
of the proposals include the following:
(1) Inventories will always be shown at cost.
(2) There will be no amortisation of intangible assets.
(3) Change in depreciation rate will be applied retrospectively.

Assess the appropriateness of the proposed accounting policies above.

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