Accounting treatment


Joined
Feb 28, 2018
Messages
1
Reaction score
0
Country
Qatar
Dear All,
I have question!
If the company maintains stock available for sale (Machines) that is normally classified as inventory (current assets)
due to some increasing demand in the rental department the company decided to rent out the machines from the inventory without reclassify the assets to fixed assets (non current) due to the urgency and temporary nature of this rental.
the income generated from this temporary rental was shared between both departments and recognized as other income.

This practice is very frequent.
from operational point of view, its an extra income and the machines are already idle in stock, so, no harm in renting out.

Is this is acceptable accounting wise?
 
Ad

Advertisements

Joined
Mar 1, 2018
Messages
7
Reaction score
2
Country
United States
The way its accounted for depends on if it is an operating lease or a capital lease...
Do any of these apply to the lease/rental?
1) Lessee will own the asset at the end of the lease
2) Lessee will have right to buy the asset at the end of the lease and it is probable they will buy it
3) Lessee has the asset for major part of the asset's economic life
4) Total rental income is substantially all of the asset value
5) Asset is so specialized that there it is no longer useful to lessor
If so, the asset should be removed from the books and a lease receivable should be recorded..

If not, the asset will stay on the books and will be depreciated and lease revenue will be booked for your rental income. It seems like this is what you are currently doing, but you should separate the rented machines into another asset account and depreciate them.
 
Last edited:

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top