Abstract
The Ministry of Finance of China has proposed a new lease accounting model to the existing lease accounting standard that requires the capitalization of all operating leases as assets and liabilities. In this case study, the key effects of the application of a new accounting standard — Accounting Standard for Business Enterprises 21 (ASBE 21), on financial statements and financial ratios of listed companies in the Chinese air transport industry have been analyzed and investigated. Significant relative differences were found within the airline industry in China. Results indicated that the total assets and liabilities would increase due to the capitalization of operating leases, whereas the profitability of firms was expected to decrease. Furthermore, the coverage of firms would decline, but the leverage of these firms would be improved. Rather than China, prior studies have analyzed the firms in other countries, where different accounting principles are applied. Hence, this study can provide useful information for the investors, as well as other stakeholders that are interested in Chinese airline corporations, and help to complete the studies about different lease accounting standards applied in different countries.
Highlights
In February 2006, the Ministry of Finance of the People’s Republic of China (MOF) promulgated the Accounting Standards for Business Enterprises 21 Lease (ASBE 21 Lease), which will be called the old Accounting Standard for Business Enterprises 21 (ASBE 21) Lease in this study (Deloitte, 2006)
The Ministry of Finance of China renewed the ASBE 21 Lease for a new lease model to adopt the change of economic activities and converge with International Financial Reporting Standards (IFRS)
The reduction of the rent expense leads to the increasing of EBITDA by a median increase of 48.73% including an average increase of 87.94%
Summary
In February 2006, the Ministry of Finance of the People’s Republic of China (MOF) promulgated the Accounting Standards for Business Enterprises 21 Lease (ASBE 21 Lease), which will be called the old ASBE 21 Lease in this study (Deloitte, 2006). The Ministry of Finance of China renewed the ASBE 21 Lease for a new lease model to adopt the change of economic activities and converge with International Financial Reporting Standards (IFRS). This model requires almost all leases to be recognized on the balance sheet by lessees (Liu, 2019). The classification of financial and operating leases has been canceled, and the operating lease should be capitalized into a balance sheet
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
