lesser as Manufacturer  or dealer

Hi,

A lessor manufacturer/dealer is a person who has got an assets which is not generally financed by other institutions in the market. He himself sales it out or gives it on rental basis. Thus the transaction of lease under this type includes two elements from the view point of lessor manufacturer/dealer. First is normal profit portion he would have generated had he sold the assets on outright basis. Second is the finance income.

Let me give you the example also, its correct one and best suitable for the topic. You must have heared about digital camera used for shooting movies. These camera has a special feature. The movie shot through such camera needs special projector to run it in a theater (to avoid piracy). Such special projector is very costly and not all the movies are shot using such technology. As the projector is new to the market and it takes hard to resale it in future, banks and financial institutions are not willing to finance it. Thus the manufacturer himself gives it to lessee on FINANCE lease and earns profit on sale as well as finance income.  I hope this clears your doubt. Yeah the difference between normal lease and lessor manufacturer is very narrow, one has ro go by case to case basis.

Regards,
Rajiv Shah

The One says:

Excellent answer Rajiv!

Simply put:

Manufacturer manufactures and sells.

In case or Manufacuterer/Leasor: Instead of sale he provides a finance option on the product ie lease

Therefore he must recognize the profit he earned on the sale of the product; as per Revenue Recognition(AS-9) he must recognize at the time of sale whereas the finance income he would recognize over the lease period as and when lease payments according to terms of contract.

Now to add to this where there is a default by the lessee the manufacturer/leasor must compute the loss on the basis of amount realized and realisable and also the terms of the lease contract ie the repossesion of assets etc.