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ILLUSTRATIONS
gi. AD Softex Ltd. has taken the assets on lease from ACS Impex Ltd. The
fallowing infor matio n is given below :
Lease term 4 years
Fair value at inception of lease Rs. 16,00,000
Lease Rent Rs. 5,00,000 p.a. at the end of ~ear
Guaranteed Residual Value Rs. 1,00,000
 ILLUSTRATIONS

gxpected Residual Value - Rs. 3,00,000

1n1plicit Interest Rate - 14.9796
po the accounting in the book of lessee?
solution: Present value of minimum lease payment
'-year MLP Discount rate at 14.97% PV
1 5,00,000 .8698 ,·: 4,34,900
5,00,000 .7565 ! J. 3,18,250
2
5,00,000 .6580 3,29,000
3
6,00,000 .5724 3,43,440
4
(Including Rs. 1,00,000)
21,00,000 14,85,590
. . ,----i
Present value of minimum lease payment (Rs. 14,85,590) is less than Fair value at
the inception of lease (Rs.16,00,000) so the leased asset and liability should be
recognized at Rs. 14,85,590.
Apportionment of., Finance Lease: Rate of Interest 14.9796
'Year Liability .· ·. ·. · MLP Finance Charge Principal Amt. of
, ' reduction
• I

0 14,85,590
1. 12,07,983 5,00,000 2,22,393 2,77,607
2 8,88,818 5,00,000 1,80,835 3,19,165
3 5,21,874 5,00,000 1,33,056 3,66,944
4 6,00,000 78,125 5,21,875
Books of AD Softex
Lease Rent Account
1st year To Bank 5,00,000 By Finance Charge 2,22,393
• I ~y Lease liability A/ c 2,77,607
5,00,000 5,00,000
2nd year To Bank 5,00,000 By Finance Charge 1,80,835
By Lease liab"ility A/ c 3,19,165
5,00,000 5,00,000
3rd year To Bank 5,00,000 By Finance Charge 1,33,056
By Lease liability A/ c 3,66,944
5,00,000 5,00,000
.e
4th Year To Bank
6,00,000 By Finance Charge 78,126
By Lease liability A/ c 5,21,874
6,00,000 6,00,000
 ACCOUNTING FOR LEASES
334
Lease Liability Account (Lessor)
1st year
To Lease Rental 2,77,607 By Fixed Asset under
Fmance lease 14,85,590
To Balance c/d 12,07,983

~
14,85,590
2nd year
To Lease Rental 3,19,165 By Balance b/d
12,07,9()3
To Balance c/d 8,88,818
12,07,903 -:-:---
3rd year ~
To Lease Rent 3,66,944 By Balance b / d

----
8,88,818
To Balance c/d 5,21,874
8,88,818 8,88,818
4th year
To Lease Rent 5,21,874 By Balance bid 5,21,874
5,21,874 5,21,874
._ 'I,..
Extract of Profit and Loss Account
1st Year To Finance Charge (.r,. 2,22,393
To Depreciation on leased Asset under SLM >• 3,71,397
2nd Year To Finance Charge • l'
1,80,835
To Depreciation , I
- 3,71,397
3rd Year To Finance Charge 1,33,056
To Depreciation on leased Asset under SLM 3,71,397
4th Year To Finance Charge 78,125
To Depreciation on leased Asset under SLM 3,71,397
Extract of Balance Sheet
1st year Liability Asset
Lease liability A/ c 12,07,983 14,85,5~
Fixed Asset under Finance Lease
Less: Depreciation 3,71,397
11,14,193
2nd year
Lease liability A/c 8,88,818 Fixed Asset under Finance Lease
Less: Depreciation
3rd year
Lease liability A/ C 5,21,874 Fixed Asset under Finance Lease
Less: Depreciation
4th year
Lease liability A/C NIL Fixed Asset under Finance Lease
Less: Depreciation
 ILLUSTRATIONS
335

x Lt~. h~ t_aken the asset s on lease from ACS fulpex Ltd • c

Th
02• AD S~fte
following infor mati on 1s given below:
i.ease tenn . = 4 year s
,,
Fair value at incep tion of lease = Rs. 16,00,000
i.ease Rent ' · - Rs. 5,00,000 p.a. at the end of year
Guaranteed Resi dual Valu e Rs. 1,00,000
£xpeeted Residual Valu e - Rs. 3,00,000 ' ''
Implicit Inter est Rate - 14.9796 !'
How the acco untin g is done in the book of lessor?
investment in
Solution: Lessor shou ld recog nize asset given unde r lease at net
lease.
incom e
Net investment in lease = Gross inve stme nt - unea rned finan ce
aran teed resid ual
Gross Inve stme nt= MLP + Guar antee d resid ual valu e+ Ungu
value
= 2000 000+ 100000+200000
=230 0000
gross inves tmen t
Unearned finan ce Inco me= Gross inve stme nt- prese nt valu e of
Present Valu e of Gross inves tmen t Pres ent Value
Year MLP disco unt facto r
1 500000 0.8698 434900
2 500000 0.7565 378250
3 500000 0.6580 329000
4 800000 0.5724 457920
2300000 1600070say1600000
Unearned finance inco me= 2300 000- 1600000 = Rs. 700000
Apportionment of MLP into Capital recovery & finance Income
Cash Fina nce Capital recov ery
Year Balance of lease
receivable recei pts redu ced from
receivable
0 16,00,000
1 5,00,000 2,39,520 2,60,480
13,39,520
2 5,00,000 2,00,525 2,99,475
10,40,045
3. 5,00,000 1,55,695 3,44,305
6,95,740
4 8,00,000 1,04,260 6,95,747
7,00,000 16,00,000
not tally with the
pie le~e receivable acco unt show n in the books of lesso r will
will rema in
~ liability acco unt as show n by the lessee in his book. Difference aran teed
ungu
_aUSe of guar antee d resid ual valu e from the third party or/ and
~esidua1 value from the lesse e poin t of view.
(the Lesso_r) on
J!uR ltd. (the lessee) acqu ired mach inery o~ lease from S _Ltd.
of the mach mery
i.e.J ary 1, 2000. The lease term cove rs the entir e econ omic life
Rs. 3,50,000. The
leas Years. The fair valu e of the mach inery on Janu ary 1, 2000 is
1,50,000 per year
be&hin~eement requ ires the lessee to pay an amo unt of Rs.
Rs 11 mg December 31, 2000. The lessee has guar ante ed a resid ual value of
that
· ,400 on Dece mber 31, 2002 to the lessor. The lesso r howe ver estim ates