Question 3b ii

(b) Previous leasing standards have been criticised about the lack of information they required to be disclosed on leasing transactions. These concerns were usually expressed by investors and so IFRS 16 Leases was issued in response to these criticisms.

Required:
(ii) For a company with significant off-balance sheet leases, discuss the likely impact that IFRS 16 will have generally on accounting ratios and particularly on:

– Earnings before interest and tax to interest expense (interest cover);
 – Earnings before interest and tax to capital employed (return on capital employed);
 – Debt to earnings before interest, tax, depreciation and amortisation (EBITDA). (6 marks)

Professional marks will be awarded in question 3b for clarity and quality of discussion. (2 marks)

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