Finance lease agreements ? accounting treatment
There are conditions to qualify as a financial leasing agreement, which deal with the transfer of ownership at the end of the contract the lessee, the right to purchase the object by the lessee at the end of the contract at a price lower than the market price during the term of the contract and the total fees. There are also additional three conditions that need to be considered:
- The agreement contains a promise of signing a new agreement at the end of the current one to use the same object under the favorable conditions. These favorable conditions will be for instance lower interest rate lease payments.
- Enables termination clause, provided that any resulting costs and losses incurred by the lessor are covered by the lessee.
- The lease object has been adapted to the needs of the user. It can be used only by the lessee, without any significant changes to it. It means that the lease is for the individual needs of the lease.
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