Financial leasing
Theory:
Leasing contract is a financial leasing operation when it meets at least one of the conditions IAS 17 par.10, e.g. when:
Leasing contract is a financial leasing operation when it meets at least one of the conditions IAS 17 par.10, e.g. when:
- the lease transfers ownership of the asset to the lessee by the end of the lease term
- the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than fair value at the date the option becomes exercisable that, at the inception of the lease, it is reasonably certain that the option will be exercised
- the lease term is for the major part of the economic life of the asset, even if title is not transferred)
Practice - examples of errors:
- contracts are treated according to their name regardless of the actual content and without reference to the requirements of IAS
- Incorrectly calculated initial value of the asset under financial leasing
- The initial fee is not included in the discounted cash flows but recognised as a separate asset and settled via accruals.
