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Under US GAAP, how to handle on those service fees
10-25-2011, 03:23 PM
Post: #1
Under US GAAP, how to handle on those service fees
Hello everyone,I encountered issues as below, hope your help and thanks!

A company has a 5 years term equipment captial lease contraction with B company. Basing on the contraction, A company paid 1.7million per month to B company.Additionally,A company has a service contraction with B company ,which was sigined at the same date as
the captial lease contraction.Subjected to the service contraction,B company will provide consulting service such as optimizing use of those equipment and industrial information to A company,A company should pay 4 millions service fee at begining of the captial lease.Those service fee also was included in the article of captial lease contraction,the captial lease contraction will be effective upon paying those service fee. The captial lease contraction has a purchase bargain option, thus assets under captial lease will be amorzized over its remaining useful life.The service fee should be
considered to be included in the minimum payment of the captial lease and be recongized as a part of assets under captial lease ?Or the service fee should be amortized over lease term as one defferred charge?
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