Financial Lease
This query is : Resolved
21 July 2008
If an Operating lease is treated as an Financial lease in the books of accounts, whats the consequences with respect to the Depreciation and Financial Statements ?
22 July 2008
A lease whereby the lessor does not operate the asset he leases, he merely finances it is known as Financial Lease.
On the other hand, any lease where lessor takes a risk other than a plain financial risk is an operating lease.
In the case of a financial lease, the present value of an asset and its associated liabilities is treated as a debt, and the interest on this amount recorded on the statement. The asset itself is depreciated over time, while its liabilities are amortized as the lease is paid.
In the case of an operating lease, payments are simply expensed as they are made.
In case the Operating lease is treated as a Financial Lease the asset is shown as a Fixed asset which is depreciated over time. As a result the Statement of affairs do not reflect the assets correctly.
On the other hand, any lease where lessor takes a risk other than a plain financial risk is an operating lease.
In the case of a financial lease, the present value of an asset and its associated liabilities is treated as a debt, and the interest on this amount recorded on the statement. The asset itself is depreciated over time, while its liabilities are amortized as the lease is paid.
In the case of an operating lease, payments are simply expensed as they are made.
In case the Operating lease is treated as a Financial Lease the asset is shown as a Fixed asset which is depreciated over time. As a result the Statement of affairs do not reflect the assets correctly.
22 July 2008
No, a lease is classified as Finance Lease or Operating lease at the inception of the lease. When a lease is classified otherwise later on, one cannot correct it subsequently.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- TDS on Consultancy- Non DTAA
- Depreciation of fixed assets- coop housing society in mumbai
- Reopen of assessment proceeding
- EXPORT BILL UNDER LUT FREIGHT CHARGE INCLUED IN INVOICE IT LIABLE TO TAX
- Rental income gst and it purpose
- EPF FULL & FINAL RULES IN 2026
- Tax Audit u/s 44AB for Transport Business A proprietorship is engaged in transportation business and
- FTS Taxable under 115A
- Experts need help
- Management System (IMS)
- Goods sold but invoice not issued
- Tally: Imported bank entries do not show up in manual reconciliation
- Sales of goods of amount Rs97 lakhs to a party
- Confused About My Career After 12th — Cyber Security, AI or Finance? Need Guidance
- STATUTORY AUDIT OF A SMALL PRIVATE COMPANY INCORPORATED ON 28.03.2025
- Guidance Needed: Linking Multiple Form 26QB Payments and Responding to ITD Defaulter Notice
- How to pay remaining amount of TDS after due date?
- Resigning a auditor from the company for misconduct
- RCM @ 5% on Hamali charges, Transport Charges, Unloading charges we take ITC or not
- CALCULATION OF DEFFERED TAX - OP BL IS DTL & CURRET IT DTA
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
