Full Text Available

Access Repository
Note: Clicking the button above will open the full text document at the original institutional repository in a new window.
Cover Image

Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules

Includes bibliographical references.

Saved in:
Main Author: Dillon, J
Other Authors: Correia, Carlos
Format: Thesis
Language:English
Published: Department of Finance and Tax 2014
Subjects:
Financial Management
Tags: Add Tag
No Tags, Be the first to tag this record!
_version_ 1867613222219022336
access_status_str Open Access
author Dillon, J
author2 Correia, Carlos
author_browse Correia, Carlos
Dillon, J
author_facet Correia, Carlos
Dillon, J
author_sort Dillon, J
collection Thesis
description Includes bibliographical references.
format Thesis
id oai:open.uct.ac.za:11427/8560
institution University of Cape Town (South Africa)
language eng
last_indexed 2026-06-10T12:32:42.829Z
license_str Not specified — see source repository
provenance_str_mv Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository
publishDate 2014
publishDateRange 2014
publishDateSort 2014
publisher Department of Finance and Tax
publisherStr Department of Finance and Tax
record_format dspace
source_str UCTD — University of Cape Town Open Access Repository
spelling oai:open.uct.ac.za:11427/8560 Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules Dillon, J Correia, Carlos Financial Management Includes bibliographical references. This study analyses the impact that operating lease capitalisation has on key financial statement ratios and failure prediction indicators of listed South African companies operating within five sectors (namely General Industrials, Industrial Transportation, Food & Drug Retailers, General Retailers and Travel & Leisure), as well as whether the impact thereof is substantially the same as the new proposed accounting treatment for Type A and Type B leases in terms of ED/2013/6 (IASB, 2013). Furthermore, the extent of lease usage in South Africa and whether the size of a company has a bearing on its extent of leasing is examined. Additional analysis is also performed investigating the materiality of straight-lining and onerous contract provisions relating to operating leases, as well as the impact of operating lease capitalisation on disclosed loan covenants. Based predominantly on the constructive operating lease capitalisation method developed by Imhoff, Lipe and Wright (1991 & 1997), a refined constructive lease capitalisation model is developed in this study which incorporates aspects of current lease accounting rules not previously considered, namely provisions recognised in respect of the straight-lining of operating leases as well as onerous operating lease contracts. This model also incorporates the new proposed lease accounting rules which require the capitalisation of all leases (Type A and Type B). The results indicate that the capitalisation of future non-cancellable operating lease commitments have a significant impact on key financial statement ratios and failure prediction indicators, most notably leverage and other debt-related ratios. Furthermore, of the five sectors analysed, retailers were the most affected. When considering the new proposed accounting treatment for Type A and Type B leases, the results indicate that operating lease capitalisation has substantially the same impact on key financial statement ratios and Altman‟s failure prediction models as the conventional operating lease capitalisation method, except for certain debt-related and profitability ratios. Further results indicate that operating leases are used extensively and substantially more than finance leases within South Africa. It was also found that operating lease usage was positively related to company size, while finance lease usage decreased as company size increased. Curvilinear relationships were also noted between a company‟s size and its extent of leasing. Further analysis revealed that recognised straight-lining lease provisions are substantially more material than recognised onerous lease contract provisions and are capable of distorting the analysis of operating lease capitalisation if ignored. When scrutinising loan covenants disclosed, it was established that none of the loan covenants were breached when capitalising operating leases; however, in each instance operating lease capitalisation negatively impacted all covenant related ratios. 2014-10-17T10:12:49Z 2014-10-17T10:12:49Z 2014 Master Thesis Masters MCom http://hdl.handle.net/11427/8560 eng application/pdf Department of Finance and Tax Faculty of Commerce University of Cape Town
spellingShingle Financial Management
Dillon, J
Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules
thesis_degree_str Master's
title Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules
title_full Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules
title_fullStr Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules
title_full_unstemmed Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules
title_short Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules
title_sort impact of constructive capitalisation of operating leases on south african companies considering new proposed lease accounting rules
topic Financial Management
url http://hdl.handle.net/11427/8560
work_keys_str_mv AT dillonj impactofconstructivecapitalisationofoperatingleasesonsouthafricancompaniesconsideringnewproposedleaseaccountingrules

Similar Items