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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 [...] 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;[...] 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 [...] 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 [...] |  FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four,Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.Also author to another very popular free educational accounting cum finance blog:http://basiccollegeaccounting.com under the branding of College Accounting Coach. | |||||
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