Lease Calculation

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P V Gopal

Job

127 Points Joined October 2007

One financier gave below lease calculation but not saying what is the interest rate considered and how he derived salvage value and lease rental per month and what depreciation rate he considered.

This is DEMO car and hence, we cannot get any income against this car. How can we calculate interest rate he charged, how he got given salvage value, what depreciation her considered and how he derived the lease rental per month

a	Tenure (months)	24
b	Base cost	803598
c	GST ( @ 31% as given in i row)	249115
d	Exshowroom (b+c)	1052713
e	1st Insurance	38225
f	RTO	154550
g	TCS	7895
h	Funding Amount (d+e+f+g)	1253383
i	GST	31%
j	Residual Value (RV)	315814
k	Lease Rentals (per month)	36541
l	GST	11328
m	Lease Rentals (per month) (k+l)	47869

Replies (3)

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

3% is the implicit interest rate and you can calculate the depreciation as per the below formulas. I'm not sure if there are any guidelines in AS19 which will prove this answer is wrong but I calculated it in a generic way.

RTU Asset+GST	1148849
Direct costs	449785.4
Tax incentives	0
Lease liability	1598634	2-year	Monthly	1-year
Implicit rate (Payback/ Funding)	(1598634/1253383)^1/2	64%	3%	32%
Implicit rate (Payback/Lease rentals)	(1598634/(47868.71*24))^1/2	70%	3%	35%

Depreciation
SLM	Cost of asset- Residual value/ Useful life
WDV	1-(Estimated useful life √Residual value/ Cost of asset)

DID NOT CONVERT LEASE PAYMENTS INTO PV AND I BELIEVE YOU KNOW HOW TO DO THAT.

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

EXCEL Formula

	Formula=Rate(No. of years*12,-monthly payments, Total funding)
Total funding		1052713	1253383	1598634
Monthly payment		47868.71	47868.71	47868.71
Number of year		2	2	2
Implicit rate		1%	-1%	-2%
Annual Implicit rate		9%	-8%	-30%
Manual Calculations:
Step 1	payback/Funding		1.39151
Step 2	Above^1/2		0.695755
Step 3	Above-1*100		-30.4245

I forgot the third step above in Manual calculations, while calculating on excel. Now, that it is sorted out, you have different rates for different inputs.

Depreciation
SLM	Cost of asset- Residual value/ Useful life	1052713-315814/10	₹ 73,689.94
WDV	1-(Estimated useful life √Residual value/ Cost of asset)	=1-(315814/1052713)^1/10)*100	97	%
Useful life of car	10

Hope this helps and sorry for the above error as you know to Err is my human nature sometimes when I am preoccupied. SLM depreciation could also be found out by using 1/10=10%.