How will the holding co. will account in its consolidated balance sheet???
if an asset is given on lease by holding co. to its subsidary and the lease is a financial lease?????
1 Replies
CWA Anil Bhange
(Manager)
(40 Points)
Replied 23 October 2010
Please see below example....
you will get some idea on accounting of Finance lease in Holding company
An enterprise (the lessee) acquires a machinery on lease from a
leasing company (the lessor) on January 1, 20X0. The lease term
covers the entire economic life of the machinery, i.e., 3 years. The
fair value of the machinery on January 1, 20X0 is Rs.2,35,500. The
lease agreement requires the lessee to pay an amount of Rs.1,00,000
per year beginning December 31, 20X0. The lessee has guaranteed
a residual value of Rs.17,000 on December 31, 20X2 to the lessor.
The lessor, however, estimates that the machinery would have a
salvage value of only Rs.3,500 on December 31, 20X2.
The interest rate implicit in the lease is 16 per cent (approx.). This
is calculated using the following formula:
ALR ALR ALR RV
Fair value = + + … + +
(1 + r)1 (1 + r)2 (1 + r)n (1 + r)n
where ALR is annual lease rental,
RV is residual value (both guaranteed and
unguaranteed),
n is the lease term,
r is interest rate implicit in the lease.
The present value of minimum lease payments from the stand point
of the lessee is Rs.2,35,500.
The lessee would record the machinery as an asset at Rs. 2,35,500
with a corresponding liability representing the present value of lease
payments over the lease term (including the guaranteed residual
value).
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