Lease asset booking financed by debt & equity

Dear friends,

I need an urgent help.

I brought an asset under finance lease (no legal title, covers major lifetime , risks are borne by me) from X by Rs. 100. To finance this asset purchase I borrowed Rs. 80 from bank and Rs. 20 from my equity. I pay full Rs. 100 at once to X with one installment.  Lease term is 15 years.

Loan repayment terms:

  • 60 monthly installments
  • 13% interest rate
  • Tenures 6 years (1 year grace period)

What are the effects in my Income statement and Balance sheet?

Please help me with details.

 

(god saves me as this forum exists :-p)smiley

Replies (1)

Lease querry

In your case you have purchased an asset on lease for 100 using 80 of debt and 20 from equity. It is simple u record the following entry:

 

1. Asset Dr 100

To bank account Cr 100 ( Includes bank loan of 80 and cash balance for equity 20).

2. Depreciate the Asset over its useful life.

3. Record interest  cost on bank loan in income statement and pay the same in accordance with the loan agreement with the bank.

4. Repayment the loan installments in accordance with the loan agreement.

 

Lease accounting is irrelevant as u have paid the entire cost of the asset to the lessor in one installment.

Thanks

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