According to Accounting Standard 19:
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. There are two types of lease as follow:
- Finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset.
- An operating lease is a lease other than a finance lease.
CALCULATION PART OF FINANCIAL LEASE IN BOTH LEESE AND LESSORS
In case of Leese books of account
Step1. First of all, recognized the amount to be recorded for the leased assets. The amount would be higher of the following:
Consider the highest amount and record the leased assets at that amount in the books of accounts.
- Present value of Minimum Lease payment received over the lease time.
- Fair value of leased assets (generally given in the question itself)
Step2. After Recognizing the amount, prepare the table as shown below:
|Serial No.||Minimum Lease Payment||Financial Charges|| Reduction in O/S liability|| Reduction in O/S liability|
Suppose amount recognized for lease amount is 350000 with a lease payment of 150000 @ 15% p.a then table would be like this
How to calculate the Financial Lease
It is easy to calculate the Financial lease from the standpoint of lessor as compared to financial lease from the stand point of Leese
.In case of Lessor books of accountStep1. Calculate the Gross Investment. Gross investment would be Minimum lease payment from the stand point of Lessor + Unguaranteed resuidal value from the standpoint of lessor that is Lease payment + Guaranteed residual+ UN-guaranteed residual
+ additional residual by third party (if any) - Contingent rent (if any)- Cost of service and Tax (if any)
Step2. Unearned lease
= Gross investment - Present Value of Gross investmentStep3. Net investment in lease
= Gross Investment - unearned lease income
Now consider the above ' Net investment in lease' amount and solve the problem as per the table given in above images or section.
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