Question

Compare / contrast the Accounting treatment for a finance vs operating lease by the lessee at;

1. Commencement of the lease
2. First yr of the lease

Do not include the the 5 lease classification criteria in your answer. Also, for the finance lease, assume that there is transfer of ownership to the lessee at the end of the lease. In addition, assume equal monthly payments by the lessee at the beginning of each month of the lease.

Your answer should be in 2 to 3 paragraphs or bullets.

Answer 1

ANSWER:

Accounting treatment for a Finance Lease by the resident at

1) Commencement of the lease

2) First year of lease

3) Finance rent , accept that there is move of possession to the tenant toward the finish of rent

According to new standard IFRS 17 – A money related rent is perceived both a benefit and obligation in the books of resident toward the beginning of the rent which is proportional to Present Value of least rent

Rent Asset A/c Dr

Rent Liability A/c Cr

At the hour of forst yearly installment , the tenant record the accompanying sections

Rent obligation A/c Fr

Intrigue Expenses A/c Dr

Money A/c Cr

Introductory Accounting – The underlying record is that the renter ought to promoted the money rented resource and making lease obligation . This ought to be determined utilizing the lower of the reasonable estimation of the advantage or the current estimation of least rent installment.

The markdown rate to be utilized in computing the current estimation of the base rent installment is the financing cost certain in the rent

Ensuing measure –

Least Lease installment lobby be apportioned between fund charge and the decrease of the Outstanding Liability

Money charge will be apportioned to every period during the rent term

A money rent offers ascend to deterioration costs for depreciable resources just as fund costs for each bookkeeping period

Bookkeeping treatment for an Operating Lease by the tenant at – Operating lease is stopped staright forward in light of the fact that don't have any advantage and risk

In the books of renter – No Journal passage toward the beginning of the rent

While making first installment – under Operating lease installment , renter group each rent installment as a costs when it got payable

Rent Expenses A/c – Dr

Money A/c – Cr