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Random Research on various notions

No. 1

Note: This writing is the mere product of my curiosity and will not constitute a formal

opinion of any sort. Though, all/any comments are welcome.

The compound modifier1

long-term:

I believe I am not the only person who used to hear that word and be not able to grasp its

concept in a clear-cut manner. The first element that triggered my thought was long. The

14th

episode of the Teen Titans series was entitled How long is forever? It was quite an

interesting episode about how long a close friendship would last.

And then, the term. Probably, I will do a research on how to differentiate between term

(singular) and terms (plural). In this short writing, term means a period of time. Since it is

used as part of a compound modifier, we (or at least I) will not try to use it in plural form.

Put together, long-term means for a long period of time. And here comes the interesting

part of my research, in Cambodian context: when can one say a period of time is long? We

will discuss about long-term lease for illustration purpose.

QualificationIf we talk to a legal guy, a long-term lease is a lease which is concluded for not less than 15

years. Because that is what the law2

says. So the criterion of distinction between a short-term

lease and a long-term lease is the period of 15 years. Any immovable lease3 of less than 15

years, example a lease for Office purpose for 7 years, is qualified as short-term.

But if we talk to an accountant, an operating lease records no asset or liability on the

financial statements, the amount paid is expensed as incurred. On the other hand, a capital

lease is recorded as both an asset and a liability on financial statements. This is complicated,

and what we need to remember for now is there is no need for us to distinguish between long-term or short-term expenses (operating leases). A capital lease can be recorded under the

assets and under the liabilities (some people might record it under loan, but I am not sure

why). Let us go back to the previous example of Office Lease for a period of 7 years, but

slightly different with an option to purchase at the end of the lease term (so that we can call it

a capital lease).

1Compoundmodifier?Notasagrammarguru,buttheWikipediacallsitacompoundmodifier,compoundadjective

or

phrasal

adjective;

2Cambodianlaw:2001landlaw(partiallyabrogated)and2007CivilCode;3Forfurtherresearchonmovableleaseandimmovablelease,pleasereadthe2007CivilCode.

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- Will this 7-year capital lease fall under the category of short-term lease (current asset,current liability)?

- In accounting, a current asset is an asset on the balance sheet which can either beconverted to cash or used to pay current liabilities within 12 months

4, whereas long-

term assets (or non-current assets, or fixed assets) are those which are not currentassets. Under these definitions, an account which falls under the category of assets for

a period of longer than 12 months (or normal operating cycle of a business) will be

qualified long-term or non-current assets.

So the criterion of distinction between a current asset and a long-term asset is the

period of 12 months. For this reason, our capital lease for 7 years is a long-term

asset.

Implications- A 7-year capital lease is governed by legal provisions applicable to short-term leases -

because it is less than 15 years - but is recorded as a long-term asset - because it is

more than 12 months.

- Law and Accounting are interrelated disciplines. For taxation, we use knowledge

from both sides: law and accounting (and also economics). However, the above

example tells us to pay close attention to the qualification/criteria of one exact same

thing under those two interrelated disciplines.

Phnom Penh, 09 June 2012THARA Rathvisal

4Ihavebeentoldthatinsomerareorganizations, itispossiblethattheirInternalFinancePolicyrequires18monthsratherthan12months.