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Operating lease or Finance lease? Need your help
08-15-2009, 06:08 PM,
#25
 
Dears,

I guess there is no room/need for "ifs" and "buts" and raising dubious questions like the following

"If the agreement includes a clause that, idle capacity losses will be borne by the lessor and similarly extra production benefit will also be enjoyed by the lessor. and the lesse has to return the asset at the end of the lease term. Repairs and maintenace costs will also be borne by the lessor."

No such things have been mentioned in the query raised and we need not to conceive such ideas at our own for answering the given query which is very straight forward, clear and open. If we will start such "ifs" and "buts" by concieving the things at our own, we can give whatever direction to the discussion we may feel like.

Further, typically in majority of leasing contracts no such conditions are mentioned where by structuring the transaction to benefit the lesser for extra production and charging it for idle capacity and normal maintenance costs, as our friend has stipulated by conditioning the "if". In case we have to place such an "if" for the clarity (in case it is warranted), ideally it should be on the side where majority of leasing arrangements fall. I would appreciate if we can discuss a single real example of such a contract; say, at least in Pakistan.

Having said that, I may also remind, here we discussed the solution to a query and are not working on a research paper. Accordingly we have to remain focussed on the query. If a reasearch discussion is needed, a clear indication may please be given after which the participants may come up with detailed "if" and "but" scenarios forgetting about the query, if they can manage the time.

To my determined view this is a finance lease in the specific scenario of given query. FV of asset is substantially equal to present value of obligation, Major part of useful life of asset is being leased out and penalty for cancellation has to be borne by the lessee. Risks and rewards incidental to ownership have been transferred in the backdrop of a leasing arrangement where nothing specific "if" and "but" has been stipulated.

Difference of opinion is a common feature of financial and accounting practices and in so many cases lead to qualified opinion from the auditors. May I remind that qualification is imposed where there is a substantial difference of opinion with the management and to my apprehension this would have been a similar case, had it been a real life issue. However, contrary to these words, I would again like to remain focussed on the original query.

Regards,



KAMRAN.
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Messages In This Thread
[No subject] - by kamranACA - 04-01-2009, 08:40 PM
[No subject] - by Star - 04-02-2009, 05:53 PM
[No subject] - by huu_tung87 - 04-02-2009, 06:24 PM
[No subject] - by Star - 04-02-2009, 07:39 PM
[No subject] - by huu_tung87 - 04-02-2009, 07:55 PM
[No subject] - by Star - 04-02-2009, 08:12 PM
[No subject] - by kamranACA - 04-03-2009, 01:51 AM
[No subject] - by NYP - 04-25-2009, 02:19 PM
[No subject] - by Star - 04-25-2009, 06:26 PM
[No subject] - by NYP - 04-25-2009, 07:04 PM
[No subject] - by Star - 04-27-2009, 02:40 PM
[No subject] - by Abdur.Rehman - 04-29-2009, 07:05 AM
[No subject] - by wsafca1 - 08-12-2009, 01:35 AM
[No subject] - by wsafca - 08-13-2009, 04:35 AM
[No subject] - by kamranACA - 08-13-2009, 07:44 PM
[No subject] - by wsafca - 08-14-2009, 02:14 AM
[No subject] - by kamranACA - 08-14-2009, 03:16 AM
[No subject] - by wsafca - 08-14-2009, 05:47 PM
[No subject] - by faisal_desperado - 08-15-2009, 01:06 AM
[No subject] - by kamranACA - 08-15-2009, 03:13 AM
[No subject] - by wsafca - 08-15-2009, 05:00 PM
[No subject] - by wsafca - 08-15-2009, 05:04 PM
[No subject] - by wsafca - 08-15-2009, 05:55 PM
[No subject] - by kamranACA - 08-15-2009, 06:08 PM
[No subject] - by kamranACA - 08-15-2009, 06:10 PM
[No subject] - by wsafca - 08-15-2009, 06:29 PM
[No subject] - by kamranACA - 08-15-2009, 06:48 PM
[No subject] - by faisal_desperado - 08-15-2009, 07:11 PM
[No subject] - by kamranACA - 08-15-2009, 07:26 PM
[No subject] - by wsafca - 08-15-2009, 10:31 PM
[No subject] - by kamranACA - 08-15-2009, 11:42 PM
[No subject] - by wsafca - 08-16-2009, 05:01 PM
[No subject] - by wsafca - 08-16-2009, 05:20 PM
[No subject] - by wsafca - 08-16-2009, 05:36 PM
[No subject] - by kamranACA - 08-16-2009, 09:00 PM
[No subject] - by wsafca - 08-16-2009, 11:19 PM
[No subject] - by kamranACA - 08-17-2009, 01:24 AM
[No subject] - by wsafca - 08-18-2009, 01:24 AM
[No subject] - by kamranACA - 08-18-2009, 05:20 AM
[No subject] - by wsafca - 08-19-2009, 12:16 AM
[No subject] - by kamranACA - 08-19-2009, 03:33 AM
[No subject] - by kamranACA - 08-19-2009, 03:37 AM
[No subject] - by applejo88 - 03-17-2011, 07:16 PM

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