The treatment of financial leases in the books of the lessee
ID:CVFLE
Video Overview
A finance lease is an agreement whereby the lessee purchases the asset from the lessor in terms of a finance lease that stipulates a set deposit, annual repayments and an interest rate to be charged. The ownership of the asset passes to the lessee at the commencement of the lease therefore the lessee must record the asset as such in his books. From the lessor’s point of view, he is the seller of the asset and the lease is recorded as a sale for which the purchaser still owes money. An operating lease is a lease whereby the ownership of the asset does not pass the lessee. The asset is still disclosed in the lessor’s books. In the books of the lessee, the lease payments are shown as an expense. In this tutorial the treatment of finance leases in the books of the lessee will be discussed.
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