sinking fund

This query is : Open

pulkit (Querist)
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14 July 2010 a facility management company is collecting and maintaining a sinking fund for replacement of capital equipments installed in a complex ,
my query is:

what will be the accounting treatment of this in the books of the company which is paying such amount , the paying company is a leasing company and is the owner of complex.

Also, after few payments, the complex is given on lease to another company and since then the lessee is contributing directly to the facility mgmt co. (as per the lease deed)

please clarify the accounting treatment in both the cases.

its urgent

CA SMR

CA SMR (Expert)
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13 August 2010 The query is not very clear.If the lessor is paying towards the sinking fund instrument say bonds ,for replacement of the capital asset leased out by them ,the accounting treatment in the books of accounts of the lessor will be,
Sinking Fund Dr(to be shown under long term assets/Investment)
To Bank
In the second case the accounting treatment of the sub-lease in the books of leasee is required.Assuming that this is operating lease,the lease income/receivable should be recognised over the term of sub-lease.