Classification of Lease

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 June 2010 There are some Vehicles taken on lease from leasing company for a period of 5 years by a company for its senior management group. The user of the vehicle will have a right to purchase the vehicle by paying outstanding book value as on that date. how should we classify this lease transaction in our books of accounts i.e. finance lease or operating lease.

Ashok Malhotra

Ashok Malhotra (Expert)
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05 July 2010 It is requested that querist should explain the problem completely. Accounting treatment depends on many factors. It is wrong to suggest an accounting treatmentif the transactions are not clearly explain.
Whether a transaction is 'Operating lease' or 'finance lease' depends upon the terms of the contract. Who is claiming the depreciation? Lessor or Lessee?

Transactions processed during the lease period will also decides the intentions on the parties. Were the lease payments recorded as as lease rental expenses or it was bifurcated between principal and interest?

User in your query has right to buy from whom. User can buy directly from the lessor after the lease is over or from the lessee if the title has been trasferred to the company.

Because of inadequate information, correct answer may be possible

CA Ashok K Malhotra

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