Glory of Personal Judgements
Personal judgment plays a crucial role in determining whether conditions in various pronouncements are met. What is personal judgment? It involves deciding if a matter should be classified as A or B, based on the specific situation and circumstances, which can vary greatly from case to case. Hence, decisions are often made on a case-by-case basis.
For example, when classifying leases as either financial or operating, one must consider whether the lease term is close to the remaining useful life (RUL) of the asset. If 5 out of 6 years of RUL are considered close enough to classify a lease as a finance lease, this should not be rigidly applied as 83.33% in every case. In another scenario, a lease term of 32,000 hours out of a total 40,000 hours of asset life might be considered close enough for a finance lease classification. However, another person might judge this same lease as an operating lease instead. Even if a specific percentage threshold is set, issues arise; for example, a lease term covering 79% might be rejected for finance lease classification. This demonstrates the importance of personal judgment in such decisions.
By CA L.Muralidharan and CPA L.Mukundan
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