One of the common problems of accounting is the qualification of the lease. Accountants often equate tax reasons and balance the contract as a finance lease or operating, even though it is not right. What's more ? we often consider the lease operating only because that's what the lease agreement is titled.

Here are some brief tips on how to deal with the issue properly for a lease in the accounts to appropriately enter the lease into the books (under IAS 17).

First, check to see if the contract is for a fixed period. If it is not, unconditionally (ie without checking further conditions) it qualifies as an operating lease. However, if in fact the contract is for a fixed period, then we need to give it further consideration, making sure that the addition meets one of the following indicators:

1.    Transfer the ownership of leased property, machinery, vehicle etc. to the lessee at the end of the period for which it was concluded.

2.     It includes the right to purchase the item by the user, at the end of the period for which it was concluded at a price lower than the market value of the acquisition. The market price is the fair value (the amount for which an asset could be exchanged, or a liability settled at arm's length transaction between knowledgeable, willing, unrelated parties), provided that there is an active market.

3.    The period for which the agreement was concluded for the most part corresponds to the expected period of useful life of the asset or property right, which can not be less than majority of the period (let?s say 3). In addition, the ownership of the contract may be, after the period for which the contract was concluded, transferred to the lessee.

4.    Total charges, net of discounts, calculated on the contract and payable during the period of its duration is close to the market value (let?s say exceeds 90%of it) at the contract date.

The total charge includes final value of the contract, which uses agrees to pay for the transfer of the ownership of that object. The total charges are not included in the payments to the lessor for the provision of additional taxes and social security of the subject, if using cover them independently of charge for use.

This condition causes the most trouble unless those involved in the leasing of the company. We said to ourselves, what is the market value. Just then, that the market value compared to the total charge, but - this is very important - the discounted sum of all payments at the date of conclusion of the contract. Currently, the calculation of the discounted value is not as annoying as a few years ago. This task can you help such as using a spreadsheet or an expert system 24iValue. Whether you need to be familiar with the basics of financial mathematics.

Further evidence present in the second part of our article on finance lease in the books.

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