Publication: The Upcoming Lease Accounting Standard And Its Impacts On Lessee's Financial Statements, And Financial Ratios "A Practical Simulation Test"
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Date
2015
Journal Title
Journal ISSN
Volume Title
Publisher
International Institute for Science, Technology and Education
Abstract
A simulator is employed to explore the actual impacts of the upcoming lease accounting standard on the financial statements item, financial risk, and performance ratios, we apply its regulations to the Royal Jordanian Airlines (RJ) financial statements. Capitalization of 30 real operation lease contracts commencing in (2002-
2014) reveal with a magnitude change in assets, lease liabilities, and owners' equity. Since we use real RJ data and depreciate the capitalized asset in a straight line method over lease term , Change in lease liabilities exceeds change on assets over time , thus resulted in a magnitude negative impact on owners' equity over 13 years. Results report a negative impact on four leverage ratios (TD/TA, TD/E, LTD/CE, IC) only NCA/ TA shows a positive change over time. We find aease material negative impact on two profitability ratios (NPM and ROE). EBIT margin and ROCE shows a positive change owing to the fact that we adjust the EBIT by the unrecorded lease interest and adjust the CE by the recorded short term operation lease liabilities, Capitalization shows a negative impact on ROA for the period 200-2007 and a positive impact for the period 2008-2014, since the ROA change depend on the Adjusted EBIT and the Adjusted total asset, TA , also the Adj. EBIT show a magnitude positive change over the period 2008-2014 resulting from the unrecorded liabilities interest , since the operation lease contracts number dramatically increased . Liquidity ratio (CR) current ratio shows a positive change, as no change in current asset with a decrease in current liabilities adjusted by the recorded short term lease asset. In view of the considerable increase in total assets Results reveal with a negative change in asset turn over AT. The significant shift in key financial risk ratios, and the negative change in major financial performance ratios suggest that interested parties "economic decisions" could be affected, therefore the upcoming lease accounting regulation could negatively affect the financial position of the airfreight firms that heavily depend on operation lease in aircraft acquirement.
Keywords: simulation, capitalization, financial risk ratios, performance ratios, lease accounting standard
Description
Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.6, No.20, 2015
Keywords
simulation,, capitalization,, financial risk ratios,, performance ratios,, lease accounting standards