looking for help in lease

[zia ahmad]

AOA.
My question is what is SALE TYPE LEASE?
and what is FINANCE TYPE LEASE?
Is there is difference in treatment
of above both leases?

regard's

[[email protected]]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by zia ahmad</i>
<br />AOA.
My question is what is SALE TYPE LEASE?
and what is FINANCE TYPE LEASE?
Is there is difference in treatment
of above both leases?

regard's

<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">




Dear Mr. Zia

IAS ¡V 17 gives the different type of lease i-e, Finance lease, Operating Lease and Sales and lease back in respect of both leaser and lessee.

Recognition criteria regarding type of lease.

IN RESPECT OF LESSEE

01 FINANCE LEASE

Finance lease recognized when following criteria shall meet.

„X Major life of asset used by Lease.
„X MLP is equal to FMV or approx.
„X All risk and reward transfer to lessee from lesser.
„X Asset have a specialized nature.
„X Lessee have a power to purchase the asset at the end of lease term

If the above criteria are meet then such lease is Finance lease and in this respect Lessee recognized the asset in its BOA and charged depreciation regarding asset life and responsible to all repairs and maintenance relating to asset.

02 OPERATING LEASE

In this type of lease, No any asset is recognized in BOA of Lessee and no depreciation shall charge. Lease rental shall be treated as rental expense over the lease period.

03 Sales and Lease Back

If an entity required funds relating to business activity then entity has a option to sale its asset with profit margin and lease back ,
In this situation a deferred profit shall be recognized and which is amortized over the lease period.

sale and back either can be operating or finance lease, for this purpose the above mentioned criteria shall be mandatory to recognized Finance or Operating Lease.

I think now your confusion shall be clear.

Regrds..
Um@r

[zia ahmad]

thanks umar for give important detail. how u define
what is sale type lease? n what is finance type lease?
is it other term of operating n finance lease?

regard's

[[email protected]]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by zia ahmad</i>
<br />thanks umar for give important detail. how u define
what is sale type lease? n what is finance type lease?
is it other term of operating n finance lease?

regard's
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

My Dear Zia,

I hv been completely define the Finance Lease , Operating Lease nd Sales and lease back and their recognition criteria given by IAS – 17,,, these three type of lease are differ from each other, u must understand that

Finance lease is the lease in which the all risk and reward transfer from lesser to lessee regarding the leased asset, like owner ship.

While in operating lease no any risk and reward transfer, only the lessee pays rentals on the monthly basis or up to decided period, no any owner ship transfer .

Sales and lease back can be finance or operating lease depend upon the terms and condition given after sale the asset and lease back it at the inception of lease, it can be finance lease or operating lease.

Is that clear friend??

Regrds

Um@r.

[zia ahmad]

thanks umar for clearification.now
i got it.

regard's

[zia ahmad]

Dear all,
How would you deal this question?

XYZ LTD a leasing company.Engaged in leasing of equipments.Company maintains
the reasonable stock of such equipment that sometime not avilable in the market.
Company keeps such equipment as its own.During the year ended Dec 31,2009 Company enter into following two contracts.

SALE TYPE LEASE
Equipment costing Rs.250,000 purchased by it two months back was leased
to MB Limited on june 30,2009.
Fair value of equipment is Rs.300,000. Lease term is for three years and rental is due
in advance,the first rental of 120000 is received on june 30,2009.The leasing co has
also incurred Rs.10000 on commision to sales persons.

FINANCE TYPE LEASE
KD Limited puchase the equipment having fair value of Rs.500000.
and leasing company paid the amoount on the behalf of KD limited on
sept 2009.The rental will due in arrear, but leasing co receive advance of
100000.The term is five years and annual rental is 134000.
The commission of 20000 paid to sales person by leasing company.

Interest rate of leasing co for SALE TYPE LEASE in normally 21.5%
and for FINANCE TYPE LEASE is 20%. Market interest rate for
SALE TYPE LEASE IS 20%.

PREPARE EXTRACT OF FINANCIAL STATMENTS OF BOTH CONTRACTS.

Regard's