Assets on lease finance

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ramesh vadnala (Querist)
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24 October 2011 how to account the monthly biils submitted by lease financier for
Principal, Interest, service tax & vat
and can take credit of service tax & vat againt the bill?

Thank u

CA Neha Jain

CA Neha Jain (Expert)
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24 October 2011 firstly, identify if the lease is operating or financial lease as per AS 19.

If operating lease, the entire lease payment will be debited to expenses.

if finance lease, the entry would be as follows -

On acquiring the asset -

Asset a/c Dr (with fair value)
Vendor A/c Cr (with fair value)

On lease payments -

Vendor a/c Dr (principle)
Interest A/c Dr
VAT Dr
Service tax a/c Dr
TDS (194A) Cr
Bank Cr

If you are providing services on which you have to pay service tax or selling goods liable for VAT, credit for these tax payments can be availed.

in that case, the debit will be to VAT Receivable a/c or Service tax receivable a/c

If no tax liability on you, taxes will be charged to P&L account