Lease

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CA Shruti kuchhal

325 Points Posted on 05 March 2010

Please help me out whether the following pertains to finance or operating lease with reasons:

An equipment is leased for 3 years and its useful life is 5 years. Both the cost and fair value of equipment are Rs. 3 Lakhs. The amount will be paid in 3 installments and at the termination of lease, lessor will get back the equipment. The ungauranteed residual value at the end of 3 years is Rs. 40000. IRR of the investment is 10%. The present value of annuity factor at the end of 3rd year at 10% IRR is 2.4868. The The present value at the end of 3rd year @ 10%is 0.713.

Also calculate unearned finance income?

Replies (4)

Payal Gupta

article assistant

232 Points Posted on 06 April 2010

it is the same question given in sonu mam's smart sereis book

it is finance lease

As per AS 19 finance lease has five features & one of them is that PV of MLP = FV (almost)

& the lease asset has economic use of life

although at the end it remains with lessor (lessee has option)

hence it satisfies the conditions & hence it is finance lease

plz correct me if i wrong bt as per my knowledge it's right

CA Shruti kuchhal

325 Points Posted on 07 April 2010

but in this question amt. of lrasr rentals are not given so non of the condition is satisfied there we have take the assumption that they are equal and proceed accordingly