An Example To Illustrate How To Classify A Lease As Finance Lease

Below example demonstrate how to classify a lease into a finance lease:

Question:

ABC Ltd enters a lease agreement on 1 January 2009 to have the right to use the asset for 10 years. The economic life of the asset is 11 years. The fair value of the asset is $12 million. The lessee agreed to pay $1.6 million annually for 10 years at the beginning of each year. The present value of the minimum lease payment is $10.5 million.

Required: How should the lease be classified?

Answer: Continue reading An Example To Illustrate How To Classify A Lease As Finance Lease

December 2nd, 2009 | Tags: , | Category: Accounting for Lease | Leave a comment

Sale And Leaseback-How To Determine whether it is A Finance Lease or Operating Lease And Accounting Treatment

The following are some criteria to classify a sale and leaseback transaction as an operating lease [IAS17.7-14(R.05)]:

A sale has genuinely occurred, where all major risks and rewards were transferred to the buyer;
The buyer (lessor) cannot [...]

July 7th, 2008 | Category: Accounting for Lease | Leave a comment

Characteristic Of Finance Lease

Tabulate below are the characteristic that indicates it as a Finance lease:-

Transfer of ownership at the end of the lease term to a lessee [IAS17.10(a)(R.05)].
The lessee has a bargain purchase option [IAS17.10(b)(R.05)].
The lease term covers the major part of the asset’s economic life [IAS17.10(c)(R.05)].
Payments made by a lessee [...]

July 7th, 2008 | Tags: | Category: Accounting for Lease | 2 comments

Accounting For Finance Lease

Summarized below the basic accounting treatment for Finance Lease.

 

In The Books of Lessee

At the inception the lessee should recognize the lease as an asset and a liability at an amount equal to the fair value of the leased assets.

The liability for a leased asset should be presented [...]

July 6th, 2008 | Category: Accounting for Lease | 2 comments

Accounting For Operating Lease

Summarized below the basic accounting treatment for Operating Lease. 

In The Books of Lessee

 

The lease payment should be recognized as an expense in the Income Statement on a straight line basis over the lease term.

 

 

In The Books Of Lessor:

July 6th, 2008 | Tags: | Category: Accounting for Lease | Leave a comment
 
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