Sales Type Lease Case Study

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Memo Message: Sales Type Leases FASB 13 defines a sales type lease as one that give rise to manufacturer of dealer’s profit or loss to the lessor and meet at lease one of the following criteria: The lease transfers ownership to the lessee at the end of the term. The lease contains a bargain purchase option. The lease term is equal to 75% or more of the estimated economic life of the leased asset. The present value at the beginning of the lease term equals or exceeds 90% of the fair value of the leased property. As the lessor of the trucks the client will be required to account for the sales type lease as follows: The difference between the gross investment in the lease in above…show more content…
The accounting procedures are the same and the criteria that must be met is the same the only difference is the profit or loss of the dealer or manufacturer. Operating Leases Operating leases are those that do not fall into any of the other lease categories and mainly are leases that usually pertain to rental of property or equipment that the lessee does not intend to own at the end of the lease term. The operating leases are accounted for by the lessor in the following: The initial direct costs will be deferred and allocated over the course of the lease term in proportion of the rental income recognition. Summary Leases can be a beneficial tool for companies to get property or equipment that they might not otherwise be able to afford at this point; however, much goes into the classification and reporting of leases. For 35 years the accounting standards relating to leases has been the same, but the FASB is now looking into the issues with lease and are set to issue a new ruling on certain parts of the lease reporting. Companies just need to make sure that they have to appropriate professional setting up the leases and reporting the financial details

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