After determining with what kind of lease agreement we are dealing, accountants have to face another problem: how to properly recognize the object being held under the finance leases in the books ?

A finance lease (as opposed to an operating lease ) means that a leased asset has to be recognized in the balance sheet and subject to depreciation. On the other side of the balance sheet reveals the financial obligations under finance leases.

Caution! On the balance sheet we show the discounted (present) value of financial liabilities. Remember that the discounted are not only the lease payments . Discounted is also the final fee (ie. when there is a purchase option).

The calculation of present value of lease obligations requires knowledge of the basics of financial mathematics . In this task, it may be helpful to use a spreadsheet - but in this case we need to know what is the discount rate . Another solution may be an expert system 24iValue that would be easier to work with -  just type the data from the lease agreement and the system then calculates all the required lease accounting entries and also the Internal Rate of Return used for discounting.

In the income statement , in turn, present the interest on lease liabilities and amortization .

Caution! The concept of depreciation is not identical with the concept of redemption. Traditionally used these words interchangeably. Remember, however , that depreciation calculated for the period, and the amortization is considered cumulatively , that is from the beginning of the introduction of the subject into the records.

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