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Lease which is done for the entire productive life of an asset is called "Capital lease or finance lease".
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What is the Difference between sales type lease and capital lease?
Capital lease is that lease in which assets are acquired for substantial useful life of asset for use in business. Sale type lease is that in which discounted cash flow for miminum lease payment is higher than value of leased asset and only relevant to lessor.
The useful life of a plant asset is determined by law or by accounting rules or the length of time it is productively used or its productive life but not to exceed one year?
law
How do you determine the useful life of a fixed asset?
useful life of fixed asset
What is useful life of an asset?
Useful life of an asset means the time for which any asset is usable in business for generating revenue for business.
Distinguish between economic life and useful life?
the useful life of an asset is the period over which an asset is expected to be available for use by an entity whiles economic life is the period over which an asset is expected to be useable by one or users
What is the Difference between sales type lease and capital lease?
Capital lease is that lease in which assets are acquired for substantial useful life of asset for use in business. Sale type lease is that in which discounted cash flow for miminum lease payment is higher than value of leased asset and only relevant to lessor.
What is the difference between operating lease and financial lease?
A finance lease is a form of financing that transfers substantially all the risks and rewards incidental to ownership over a leased asset from the lessor to the lessee. By signing the contract and delivering the leased asset, the lessor transfers economic ownership over the leased asset, while legal ownership is transferred only upon the expiration of lease, on payment of the final instalment. In a finance lease, the lessee uses the leased asset for most of its lifecycle, as with loans.An operating lease is a lease whereby all the risks and rewards incidental to ownership over the leased asset remain with the lessor. In this case, the lessor retains the economic and legal ownership over the leased asset, while the lessee has only right of use. Upon the expiration of contract, the leased asset is returned to the lessor. Under an operating lease, the lessee uses the leased asset for less than its useful life.
In Accounting what does Residual value mean?
Residual value estimates how much an asset is worth at the end of its productive life. This value is calculated by the lending institution prior to a lease or loan on an item. It is based on past and future predictions and is the key way of determining a payment schedule.
The useful life of a plant asset is determined by law or by accounting rules or the length of time it is productively used or its productive life but not to exceed one year?
law
Where are operating leases recorded in financial statements?
Operating lease is that kind of lease which is not done for entire useful life of assets and only lease rental are paid and expensed through income statement.
When is the cost of a long term assets expensed?
Cost of long term asset is expensed through depreciation in income statement for entire useful life of an asset.
Whose financial asset is the life estate the remainder or the life tenant?
Generally:The life estate is an asset of the life tenant.The property is an asset of the remainder.Generally:The life estate is an asset of the life tenant.The property is an asset of the remainder.Generally:The life estate is an asset of the life tenant.The property is an asset of the remainder.Generally:The life estate is an asset of the life tenant.The property is an asset of the remainder.
What is the operational leasing?
Operational lease is short-term lease and it normally does not cover the full economic life of the leased asset. The lessor bears all risks and rewards, connected with the ownership of the equipment, and provides to the lessee maintenance services for the leased machines and equipment. In terms of taxation, the lessee is entitled to deduct the full amount of the lease installment from its taxable profit.
What are the five primary types of leases and what are their characteristics?
Hi dear TYPES OF LEASE AGREEMENTS Lease agreements are basically of two types. They are (a) Financial lease and (b)Operating lease. (c) Sale and lease back (d) Leveraged leasing and (e) Direct leasing. 15.5.1 FINANCIAL LEASE Long-term, non-cancellable lease contracts are known as financial leases. The essential point of financial lease agreement is that it contains a condition whereby the lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost. At lease it must give an option to the lessee to purchase the asset he has used at the expiry of the lease. Under this lease the lessor recovers 90% of the fair value of the asset as lease rentals and the lease period is 75% of the economic life of the asset. The lease agreement is irrevocable. Practically all the risks incidental to the asset ownership and all the benefits arising there from are transferred to the lessee who bears the cost of maintenance, insurance and repairs. Only title deeds remain with the lessor. Financial lease is also known as 'capital lease'. In India, financial leases are very popular with high-cost and high technology equipment. OPERATIIONAL LEASEAn operating lease stands in contrast to the financial lease in almost all aspects. This lease agreement gives to the lessee only a limited right to use the asset. The lessor is responsible for the upkeep and maintenance of the asset. The lessee is not given any uplift to purchase the asset at the end of the lease period. Normally the lease is for a short period and even otherwise is revocable at a short notice. Mines, Computers hardware, trucks and automobiles are found suitable for operating lease because the rate of obsolescence is very high in this kind of assets. SALE AND LEASE BACK It is a sub-part of finance lease. Under this, the owner of an asset sells the asset to a party (the buyer), who in turn leases back the same asset to the owner in consideration of lease rentals. However, under this arrangement, the assets are not physically exchanged but it all happens in records only. This is nothing but a paper transaction. Sale and lease back transaction is suitable for those assets, which are not subjected depreciation but appreciation, say land. The advantage of this method is that the lessee can satisfy himself completely regarding the quality of the asset and after possession of the asset convert the sale into a lease arrangement. 4)LEVERAGED LEASING Under leveraged leasing arrangement, a third party is involved beside lessor and lessee. The lessor borrows a part of the purchase cost (say 80%) of the asset from the third party i.e., lender and the asset so purchased is held as security against the loan.The lender is paid off from the lease rentals directly by the lessee and the surplus after meeting the claims of the lender goes to the lessor. The lessor, the owner of the assetis entitled to depreciation allowance associated with the asset. 5 DIRECT LEASING Under direct leasing, a firm acquires the right to use an asset from the manufacturer directly. The ownership of the asset leased out remains with the manufacturer itself. The major types of direct lessor include manufacturers, finance companies, independent lease companies, special purpose leasing companies etc ============================ *****for more detail go to this link http://du.ac.in/course/material/ug/ba/esb/Lesson_15.pdf by Vimal Raval
Leasing can have a significance effect on the appearance of the firms financial statement such as return on asset.?
Yes, it can have a significant effect. It is part of capital budgeting which looks at the cost of leasing versus the cost of buying a new asset. In example, when leasing machinery, you enter into a contract, but you are generally not expected to pay for maintenance costs etc. Also, you do not take over ownership of the asset, so if you require it for only a short period of time it may actually be easier to get rid of. Furthermore, the lease repayments are tax deductible items, so by the end of the lease the entire cost of the lease has been deducted. When purchasing an asset you need to take into account the installation cost, salvage value etc. You can calculate the depreciation of the asset and there are varying ways of reducing depreciation, such as straight line depreciation (a percentage of the prime cost = original purchase cost) or diminishing value (generally a percentage per period). The depreciation will have a tax benefit attached to it, and the advantage of purchasing is ownership of the asset. You can make a gain (or a loss) when disposing of the asset by the end of its life. When performing calculations for both purchasing and leasing options, it can be determined what would be the most cost effective way. You will calculate the Net Present Value of both items for the total costs and income streams over the entire life of the asset.
What is the distinction between straight line balance method and diminishing balance method?
The straight-line balance method calculates depreciation by dividing the asset's cost minus its residual value by its useful life. In contrast, the diminishing balance method calculates depreciation by applying a fixed percentage to the asset's book value each period, resulting in higher depreciation expenses in the early years of an asset's life.
What is the duration of Lease of Life?
The duration of Lease of Life is 1.57 hours.
