We want to take vehicle on lease for that we have to pay 10% as upfront payment & after for year vehicle will be handover to us for Rs.1. so just want to understand accounting treatment of upfront payment. either to book it as expenses or capitalize it for 4 years.
2 Replies
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 12 August 2020
This is complex IndAS 116 treatment again, whether to book it as an expense or capitalise it. I had gone through some resources online and it says that deposits or any prepayals should be capitalised into Right to use asset. The contract does contain a lease component as defined by IndAS. The amortisation of deposit is not clearly described here in this example: https://www.caclubindia.com/articles/impact-of-lease-rentals-and-interest-free-deposits-under-ind-as-116-40629.asp
Technically,
ROU Asset - Asset
Advance- Asset
Direct costs- Asset
To Lease liability
Is the entry. It is to included in the cost of asset which means, it is capitalised and amortised. Subsequent treatment suggests that ROU will reduce due to amortisation and depreciation.
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 12 August 2020
Now if car advance payment is 20,000, then
Year 2
2. 20,000*discount factor= 18,900
3. 20,000*discount factor= 18,500
4. 20,000*discount factor= 17,900
total right to use asset liability which includes 5,000 direct costs is (20,000+18,900+18,500+17,900+5000= 80,300₹)
ROU 80,000₹
To Lease liability 80,300₹
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