20 years: Chartered accountant & educator
In this second part of the series, Saket describes the terms by which an asset is leased and outlines an example.
In this second part of the series, Saket describes the terms by which an asset is leased and outlines an example.
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5 mins 28 secs
This example is about the lessor, the entity whose equipment is being leased.
Key learning objectives:
Identify how to calculate the lease receivable
Identify how to calculate the gross investment, net investment, total income and depreciation
Identify how this is presented in the profit and loss statement
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An asset is leased on the following terms:
Lease receivable on initial recognition: £20,000 + £1,335 = £21,335, which includes the lessor’s initial direct costs of entering into the lease.
Lease receivable = Balance at the end of the year - balance at the beginning of the year - interest + lease payment
The depreciation over three years = carrying amount of the asset (£20,000) + initial direct costs (£1,335) - unguaranteed residual value (£1,500) = £19,835.
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