04-02-2009, 06:24 PM
4 at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and
Substantially is also not defined in IAS, however as per US GAAP it is more than 90%. Present value comes 89.42% (Rupees 31,117) which is not substantially equal to the fair value at the inception of the lease.
As you said, I really wonder about the number" 89.42 % ". My calculation is 96.14%. Under my understanding, we should use minimum lease payment not minimum rental payment . And here ASSB 117 state that " minimum lease payment includes rental payment and guaranteed residual ", in this exercise guaranteed residual is 3600 = 7200/2. Is this right !
I saw that you using US standards and I using Australian standards, is there any differences ( I just want to confirm )
Another point--
6. If the lessee is entitled to cancel the lease, the lessor's losses associated with the cancellation are borne by the lessee;
The lease is cancellable, but a penalty equal to 50% of the total lease payment is payable on cancellation. Lessor understands that the loss would be 50%
Criteria met
At the first moment, I thought like you but I see that there is a limited cost ( which is 50% of total payment ). That means the lessee has limited risks, which lead to fail in Definition of finance lease " A lease in which the terms of the lease agreement transfer the risks and benefits of ownership form lessor to the lessee ", Craig Deegan, 2007, Australian Financial Accounting, chapter 11, page 397. ISBN 0070136777
Substantially is also not defined in IAS, however as per US GAAP it is more than 90%. Present value comes 89.42% (Rupees 31,117) which is not substantially equal to the fair value at the inception of the lease.
As you said, I really wonder about the number" 89.42 % ". My calculation is 96.14%. Under my understanding, we should use minimum lease payment not minimum rental payment . And here ASSB 117 state that " minimum lease payment includes rental payment and guaranteed residual ", in this exercise guaranteed residual is 3600 = 7200/2. Is this right !
I saw that you using US standards and I using Australian standards, is there any differences ( I just want to confirm )
Another point--
6. If the lessee is entitled to cancel the lease, the lessor's losses associated with the cancellation are borne by the lessee;
The lease is cancellable, but a penalty equal to 50% of the total lease payment is payable on cancellation. Lessor understands that the loss would be 50%
Criteria met
At the first moment, I thought like you but I see that there is a limited cost ( which is 50% of total payment ). That means the lessee has limited risks, which lead to fail in Definition of finance lease " A lease in which the terms of the lease agreement transfer the risks and benefits of ownership form lessor to the lessee ", Craig Deegan, 2007, Australian Financial Accounting, chapter 11, page 397. ISBN 0070136777
