Lease Accounting in lessor books

[mushylimdi]

Hello Everyone,



We are a finance company and leasing the equipment to our clients.



Currently we lease the Vehicle to our client with option to buy the vehicle after 3 years and 5 years. All the liabilities on our side (Maintenance, Insurance, etc).



Here,s the details are.



Total Value of Vehicles are (15 Nos X 8350 Cost for Each)=125,250.00

Revenue for 3 years, Per Month (262.500 Rent monthly X 15 Nos)=3,937.500

Total Residual Value After 3 years (Option to Purchase) = (4,175 X 15 Nos) =62,625/-

Revenue after 3 years, Per Month (for Extended 2 years) = (250 X 15 Nos)=3,750/-

Residual Value After 5 years (Option to Purchase) = (2,421.5 X 15 Nos) =36,322/-



As a lessor, i want to know how can we treat these type of Lease Transaction. As an Operating Lease or as Finance lease.



And Appreciate if you describe the detailed entry in the both the options for us (In Lessor Books).



Thanks & regards,

Micheal

 

[kirby]

As you are a leasing company, how are you handling this now?

 

[mushylimdi]

As you are a leasing company, how are you handling this now?

We had handle finance lase and short term operating lease(Rental) earlier. As i understood this is an Operating Lease with option to buy the equipment at the end of the first term which is 3 year. If i treat as normal operating lease then i have to booked assets and depreciation on the basis of residual value. As its long term lease i just want to know if there is any other option.

Thanks