Leases-Accounting( AS-19)
Finance Lease:-risk and reward transferred
to lessee.
Operating Lease:- Ownership not transferred
to lessee.
Leases-Accounting( AS-19)
Definitions
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Guaranteed Residual Value
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In respect of lessee-amount which is
guaranteed by or on behalf of lessee
In respect of lessor- amount which is
guaranteed by or on behalf of lessee or by
an independent third party
Unguaranteed residual Value- difference
between residual value and Guaranteed
residual value.
Leases-Accounting( AS-19)
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Gross Investment
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Minimum lease payment ( from the standpoint of
lessor) and Any Unguaranteed residual value
accruing to the lessor
Interest rate implicit :- the discount rate at which
fair value of leased asset at the inception is equal
to PV of ( Min. lease payment + any unguaranteed
residual value)
Contingent Rent- lease rent fixed on the basis of
% of sales, market rate etc.
Leases-Accounting( AS-19)

Minimum Lease Payment
Total lease rent to be paid by lessee
+ any guaranteed residual valuecontingent rent-cost of service and tax
to be paid by and reimbursed to lessor+
residual value guaranteed by third
party( in case of lessor).
Leases-Accounting( AS-19)
Accounting for Finance Lease
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In the books of Lessee:-Leased Asset to
be recognised as lower of
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Fair Value of the leased asset at the inception
Present Value of Minimum Lease payment
Each lease payment should be apportioned as
finance charge and principal amount.
Depreciation to be charged on the leased
asset.(AS-6) under SLM
Finance Charge
Dr.
Lease liability account Dr.
To Lease rent
Leases-Accounting( AS-19)
Accounting for Finance Lease
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In the books of Lessor:-To be recognised
as a Receivable at an amount equal to net
investment with credit to sale of asset.
Net Investment= Gross investment-Unearned
finance income
Unearned Finance Income= Gross
investment- present value of Gross
Investment.
Leases-Accounting( AS-19)
Accounting for Operating Lease.
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In the books of Lessor:- Record
Leased out asset as fixed asset in the
Balance Sheet.
Charge depreciation as per AS-6
Recognise lease income in P & L
account using SLM.
Other operating costs to be debited to
P & L account
Leases-Accounting( AS-19)
Accounting for Operating Lease.
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In the books of Lessee:- Lease payment to
be recognised as expense in the P & L
account.
Disclosures in Financial Statements:
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Total of future MLP in not later than one year
Later than one year not later than 5 years.
Later than 5 years.
General Description of the leasing arrangement.