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Chapter 6
Operating leases
2.1 Definition of an operating lease
As per IAS 17 Leases, an operating lease is any lease that is not a
finance lease.
No risk and reward transfer to the lessee.
2.2 Accounting for an operating lease
No capitalisation of the asset.
Lease rentals are charged to the P/L on a systematic basis over the lease term
(typically straight line).
Difference between amount in P/L and the cash payment is recognised as a
prepayment or accrual.
Dr Rental expense
Cr Cash
Cr/Dr Accrual/Prepayment
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