07-30-2005, 09:40 PM
you are correct that one has to ascertain the substance of the transaction over legal form. How I would view the situation in hand is as follows
Finance lease, obtain lease documents and establish it is a finance lease and not an operating lease. If you think that the title of asset rest with our client then as you said captalise.
Now supplier credit can be tricky
I would see that whether or not the supplier is offloading the asset becuase they no longer needed it and our client needed the asset. If so whether the offloading is commerically sound (ie new asset is x pounds and we are getting it for x-y pounds) then I might take the view its a genuine transaction.
If the supplier is a poultry farm and they are trying to sell us an asset used to make fans then substance over legal form might necessite this transfer to be treated as something else but asset acquisation. Or our supplier is our bank and they are trying to sell us whisky on a 30 year sale or buy back clause, its definately definately not an sale but a commercial loan transaction.
Finance lease, obtain lease documents and establish it is a finance lease and not an operating lease. If you think that the title of asset rest with our client then as you said captalise.
Now supplier credit can be tricky
I would see that whether or not the supplier is offloading the asset becuase they no longer needed it and our client needed the asset. If so whether the offloading is commerically sound (ie new asset is x pounds and we are getting it for x-y pounds) then I might take the view its a genuine transaction.
If the supplier is a poultry farm and they are trying to sell us an asset used to make fans then substance over legal form might necessite this transfer to be treated as something else but asset acquisation. Or our supplier is our bank and they are trying to sell us whisky on a 30 year sale or buy back clause, its definately definately not an sale but a commercial loan transaction.
