Financial lease accounting entries:
Borrow: Fixed Assets - Finance Lease
Loan: Other Accounts Payable
Accounting for Finance Lease by Lessee
1. Accounting at the Lease Commencement Date
Borrow: Fixed Assets - Finance Leased Fixed Assets (Lower of Fair Value of Leased Asset and Present Value of Minimum Lease Payments)
Unrecognized Financing Costs
Loan: Long-Term Payables - Finance Lease Payable (Minimum Lease Payments)
At the lease commencement date, the lessee should normally include in the lease commencement date the leasehold's On the lease commencement date, the lessee should normally record the lower of the fair value of the leased asset and the present value of the minimum lease payments as the book value of the leased asset, and the minimum lease payments as the book value of the long-term payable, and record the difference between the two as an unrecognized finance charge.
But if the finance lease asset does not account for a significant proportion of the total assets of the enterprise, the lessee may record the leased asset and the long-term payable at the lease commencement date on the basis of the minimum lease payments.
This "insignificant proportion" usually means that the total amount of fixed assets leased under finance leases is less than 30% of the total assets of the lessee (including 30%). In this case, for the determination of the amount of finance lease assets and long-term payable, the lessee can choose, that is, the minimum lease payments can be used, or the original book value of the leased asset and the present value of the minimum lease payments, the lower of the two.
The "original book value of the leased asset" refers to the book value of the leased asset as reflected in the lessor's books on the commencement date of the lease.
When calculating the present value of the minimum lease payments, the lessee should use the lessor's embedded rate of interest in the lease as the discount rate if the lessor's embedded rate of interest in the lease is known; otherwise, the rate of interest stipulated in the lease contract should be used as the discount rate.
If the lessor's lease implicit interest rate and the interest rate specified in the lease contract are unavailable, the bank lending rate for the same period should be used as the discount rate. Where the lease implicit rate is the discount rate that makes the sum of the present value of the minimum lease payments and the present value of the unguaranteed residual value equal to the original book value of the asset at the lease commencement date.
2, the accounting treatment of the initial direct costs
Borrow: fixed assets - finance leased fixed assets (initial direct costs)
Loan: bank deposits, etc.
Initial direct costs refers to the process of negotiating and signing the lease contract of the lease incurred in the process of leasing can be directly attributed to the costs of the lease item. Initial direct costs incurred by the lessee usually include stamp duty, commissions, attorney's fees, travel expenses, and expenses incurred in negotiations. The initial direct costs incurred by the lessee should be included in the recorded value of the leased asset. The accounting treatment is: debit "fixed assets", credit "bank deposits" and other subjects.
3, unrecognized financing costs
Borrow: long-term accounts payable - finance lease payable
Loan: bank deposits
Borrow: finance costs
Loan: unrecognized finance costs
Under a finance lease, the lessee pays rent to the lessor. The rent paid by the lessee to the lessor contains both principal and interest. When the lessee pays the rent, on the one hand, it should reduce the long-term payable, on the other hand, it should simultaneously recognize the unrecognized finance lease expense as current financing expense according to a certain method. In the case of rent first (i.e., equal amount of rent payment at the beginning of each period), the rent paid in the first period of the lease period does not include the interest, and it only reduces the long-term payable, and it does not need to recognize the current financing expense.
When apportioning the unrecognized financing expenses, the lessee should adopt certain methods to calculate them. According to the guideline, the lessee can use the effective interest rate method, or the straight-line method and the sum-of-the-years method and so on. In adopting the effective interest rate method, the selection of the rate of apportionment of financing expenses is different depending on the basis of the recorded value of the leased assets and liabilities at the inception of the lease. The apportionment of unrecognized financing costs is specifically divided into the following cases:
(1) The leased assets and liabilities are recorded at the present value of the minimum lease payments and are discounted at the interest rate embedded in the lease by the contributor. In this case, the rate of assessment shall be the funder's lease-embedded rate.
(2) Lease assets and liabilities are recorded at the present value of the minimum lease payments and the interest rate specified in the lease contract is used as the discount rate. In this case, the interest rate specified in the lease contract shall be used as the rate of assessment.
(3) Leased assets and liabilities are recorded at the original book value of the leased asset and there is no residual value of the lessee's guarantee and preferential purchase option. In this case, the financing cost sharing ratio should be recalculated.
The finance charge sharing ratio is the discount rate that, at the inception date of the lease, would result in the present value of the minimum lease payments being equal to the original carrying amount of the leased asset. In the case where the lessee or a third party related to it guarantees the residual value of the leased asset, similarly to the above, at the end of the lease term, the unrecognized finance charges should be fully amortized and the lease liability should be reduced to zero.
(4) Lease assets and liabilities are recorded at the original book value of the leased asset and there is no residual value of the lessee's guarantee, but there is a favorable purchase option. In this case, the financing cost sharing ratio should be recalculated.
(5) Lease assets and liabilities are recorded at the original book value of the lease asset and there is a residual value of the lessee's guarantee.
In this case, the financing cost sharing ratio should be recalculated. Where the lessee or a third party related to it guarantees the residual value of the leased asset or pays liquidated damages as a result of the lease not being renewed at the end of the lease term, at the end of the lease term, the unrecognized finance charges shall be fully amortized and the lease liability shall be reduced to the residual value of the guarantees or to the amount of liquidated damages payable at that date.
The lessee shall debit the account of "Long-term Payables - Finance Lease Payable" and credit the account of "Bank Deposits" according to the amount of rent payable in each installment, and if the rent payable includes the cost of performance, the account of "Manufacturing Costs" shall be debited at the same time. If the rental payment includes performance cost, it should be debited to "manufacturing cost", "administrative expense" and other accounts at the same time. At the same time, according to the amount of financing costs to be recognized in the current period, debit the "finance costs" account, credit "unrecognized financing costs" account.
4, the depreciation of leased assets
The lessee should be depreciated fixed assets leased under finance, the main two issues should be resolved:
(1) depreciation policy
"Accounting Standard 21 - Leasing" stipulates that "for assets leased under finance, the depreciation of the leased assets should be calculated based on the amount of finance charges recognized in the current period and credited to the "unrecognized finance charges" account. For assets leased under finance? The lessee shall depreciate the leased assets compared to the own fixed assets, when depreciating the leased assets? The lessee shall adopt a depreciation policy consistent with that of its own depreciable assets.
If the lessee or a third party related to the lessee has provided a guarantee for the residual value of the leased asset, the total amount of depreciation accrued shall be the recorded value of the fixed asset at the commencement date of the lease term, less the residual value of the guarantee; if the lessee or a third party related to the lessee has not provided a guarantee for the residual value of the leased asset and it is not reasonably possible to ascertain whether or not the lessee will be able to obtain the ownership of the leased asset at the expiry of the lease, the total amount of depreciation accrued shall be the book value of the fixed asset at the commencement date of the lease term, less the residual value of the guarantee. The total amount is the recorded value of the fixed assets on the commencement date of the lease term.
(2) Depreciation Period
Determination of the depreciation period of the leased asset shall be based on the lease contract. If it is reasonably certain that the lessee will obtain ownership of the leased asset at the end of the lease term, the lessee can be recognized as having the full useful life of the asset, so the lease should be the beginning of the useful life of the leased asset as the period of depreciation; if it is not reasonably certain that the lessee will be able to obtain the ownership of the leased asset at the end of the lease term, the shorter of the lease term and the useful life of the leased asset, the lease term and the leased asset as the depreciation period. If it is not reasonably certain whether the lessee will be able to obtain ownership of the leased asset at the end of the lease term, the shorter of the lease term and the remaining useful life of the leased asset shall be the depreciation period.
5. Accounting treatment of performance costs
Borrow: administrative expenses, etc.
Credit: bank deposits
There are many types of performance costs, such as improvement expenditure on fixed assets leased under finance, technical consulting and service fees, and personnel training fees, etc., which should be credited to the expenses of the respective period on a deferred basis, and debited to the "Long-term amortized expenses", "Advance payment", "Long-term amortized expenses", "Long-term amortized expenses", "Advance payment", "Long-term amortization expenses", and so on. For fixed assets, recurring repair costs and insurance costs can be charged directly to current expenses, and debited to "Long-term Amortized Costs", "Accruals", "Manufacturing Costs", "Administrative Expenses" and other subjects. For fixed assets recurring repair costs, insurance costs, etc. can be directly charged to current expenses, debit "manufacturing costs", "operating expenses" and other subjects, credit "bank deposits" and other subjects.
6, the accounting treatment of contingent rent
1) contingent rent based on the percentage of sales, usage, etc.:
borrow: selling expenses
credit: bank deposits
2) contingent rent based on the price index:
borrow: finance costs
credit: bank deposits
Because the amount of contingent rent is uncertain, it is not possible to use a systematic and rational method of its apportionment, so when the actual occurrence, debit "manufacturing costs", "operating expenses" and other subjects, credit "bank deposits "
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7, the lease expiration of the accounting treatment
Lease expiration, the lessee is usually on the leased assets are handled in three cases:
(1) return the leased assets.
Borrow: long-term accounts payable-finance lease payable
Accumulated depreciation
Loan: fixed assets-finance leased fixed assets
(2) Preferential renewal of the leased asset. If the lessee exercises the preferential renewal option, the lease should be treated as if it had always existed and the corresponding accounting treatment. If the lease is not renewed at the end of the term, according to the lease contract to the lessor to pay liquidated damages:
Borrow: non-operating expenditures
Credit: bank deposits.
(3) retained purchase of leased assets. When the lessee enjoys the preferential purchase option, when paying the purchase price:
Borrow: Long-term payables - finance lease payable
Loan: Bank deposit
At the same time, the fixed assets will be transferred from the "Finance Lease Fixed Assets" line item to the relevant other line items.
8, accounting disclosure of relevant information.
The lessee shall disclose in the financial report the matters related to finance leasing, mainly including:
(1) The original book value, accumulated depreciation and net book value of each type of leased asset at the balance sheet date.
(2) The minimum payments to be made in each of the three consecutive fiscal years following the balance sheet date and the total minimum payments to be made in subsequent years.
(3) The balance of unrecognized financing charges. That is, the total amount of unrecognized financing charges minus the portion of recognized financing charges.
(4) The method used to apportion the unrecognized financing costs. For example, the effective interest rate method, the straight-line method, or the sum-of-the-years method.
Lessor's accounting treatment of finance leases
1. Accounting treatment at the lease commencement date
The lessor shall take the minimum lease receipts at the lease commencement date as the recorded value of the finance lease receivable and record the unguaranteed residual value at the same time, and record the difference between the sum of the minimum lease receipts and the unguaranteed residual value and the sum of its present value as an unrealized financing gain.
On the commencement date of the lease, the lessor shall debit the account of "finance lease receivables" for the minimum lease payments, debit the account of "unguaranteed residual value" for the amount of unguaranteed residual value, and credit the account of "finance leased assets" for the original book value of the leased assets. According to the original book value of the leased asset, credit the account of "Finance Lease Assets", and according to the difference between the above accounts, credit the account of "Unrealized Financing Gain".
2. Accounting for initial direct costs
Initial direct costs incurred by the lessor usually include stamp duty, commissions, attorney's fees, travel expenses, negotiation fees and so on. The initial direct costs incurred by the lessor should be recognized as current expenses. Debit "administrative expenses" and other subjects, credit "bank deposits" and other subjects.
3, the allocation of unrealized financing gains
The lessor receives each period of rent including principal and interest. Unrealized financing gains should be allocated in each period of the lease term, recognized as financing income in each period. At the time of allocation, the lessor shall use the effective interest rate method to calculate the financing income to be recognized in the current period, and may also use the straight-line method and the sum-of-the-years method if there is no significant change from the results of the effective interest rate method.
The lessor shall debit the account of "bank deposits" and credit the account of "finance lease receivables" for the rent received in each period. At the same time, each period of recognition of finance lease income, debit the "unrealized financing gains" account, credit the "main business income financing income" account.
When the lessor does not receive rent for more than one rental payment period, it should stop recognizing income, and the recognized income should be reversed and transferred to off-balance sheet accounting. By the time the rent is actually received, the financing income included in the rent shall then be recognized as current income.
4. Accounting for changes in the unguaranteed residual value
The lessor should regularly check the unguaranteed residual value, and if there is evidence that the unguaranteed residual value has been reduced, it should re-calculate the lease embedded interest rate and recognize the reduction of the net investment in leasing for the current period as a loss for the current period, and determine the financing income that should be recognized for the future periods based on the revised net investment and the re-calculated lease embedded interest rate. recognized as financing income in subsequent periods based on the revised net investment and the recalculated lease implicit rate.
If the unguaranteed balance for which a loss has been recognized is recovered, it shall be reversed within the amount of the original recognized loss and the lease implicit interest rate shall be recalculated. The net investment in the lease is defined as the difference between the sum of the minimum lease receipts and the unguaranteed residual value in a finance lease and the unrealized financing income.
Since the amount of the unguaranteed residual value determines the size of the lease embedded interest rate and thus the allocation of the unrealized gain on financing, in order to truly reflect the assets and operating performance of the enterprise, and in accordance with the requirements of the principle of prudence, in the event of a decrease in the unguaranteed residual value and a recovery of the unguaranteed residual value of the recognized loss, both should be recalculated for the lease embedded interest rate, and in the event of an increase in the unguaranteed residual value, no adjustment is made. No adjustment is made.
At the end of the period, the difference between the estimated recoverable amount of the unguaranteed residual value of the lessor and its book value is debited to "Deferred income - unrealized financing gains" and credited to "Unguaranteed residual value". If the recognized unsecured residual value is recovered, it should be reversed within the amount of the original recognized loss, and the account is the opposite of the previous one.
5, contingent rent accounting.
Contingent rent should be recognized as income when it actually occurs. Debit "accounts receivable", "bank deposits" and other subjects, credit "income from main business - financing income"
6, the accounting treatment of the expiration of the lease period
(1) The lease expires at the end of the lease term. p>(1) At the end of the lease term, the lessee will return the leased asset to the lessor. At this point there are four situations:
A. There is a guaranteed residual value, there is no unguaranteed residual value.
When the lessor receives the asset returned by the lessee,
Borrow: finance lease asset?
Loan: finance lease receivable?
B. There is a guaranteed residual value and an unguaranteed residual value.
When the lessor receives the asset returned by the lessee, it will debit the account of "finance lease asset" and credit the accounts of "finance lease receivable" and "unguaranteed residual value".
C. There is no guaranteed residual value and there is unguaranteed residual value.
When the lessor receives the asset returned by the lessee, it debits the account of "Finance Lease Asset" and credits the account of "Unguaranteed Residual Value".
D. Neither the guaranteed nor the unguaranteed residual value exists.
The lessor does not need to do anything, but only need to make the appropriate record.
(2) Preferential renewal of lease assets.
If the lessee exercises the option to renew the lease, the lessor should treat the lease as if it had always existed and make the corresponding accounting treatment. If the lessee does not renew the lease, according to the provisions of the contract to collect liquidated damages from the lessee, debit "other receivables", credit "non-operating income" account. At the same time, the recovered assets will be treated according to the above provisions.
(3) Leasehold purchase.
The lessee has exercised the favorable purchase option. The lessor should debit "bank deposits" and credit "finance lease receivables" according to the price received from the lessee for the purchase of the asset.
Expanded information:
Financial leasing (financial leasing) is the term used to describe the purchase of an asset. p>Financial leasing (financial lease) is currently the most common and basic form of international. It refers to the lessor according to the lessee's (user) request, and the third party (supplier) to enter into a supply contract, according to this contract, the lessor to finance the purchase of equipment selected by the lessee. At the same time, the lessor enters into a lease contract with the lessee, leasing the equipment to the lessee and charging the lessee a certain amount of rent.
Financial leasing is a new type of financial industry that combines financing and financing, trade and technology renewal. Due to the combination of financing and financing, the leasing company can recover and deal with the leased goods when there is a problem, thus it is very suitable for SMEs' financing because it does not require high credit and guarantee for the enterprise when dealing with financing.
After 2007, the domestic financial leasing industry entered a period of geometric growth. The total amount of business increased from about 8 billion yuan in 2006 to about 930 billion yuan in 2011. at the end of 2012, there were about 560 financial leasing companies registered and operating nationwide, including 20 financial leasing companies, 80 domestic leasing companies, and about 460 foreign leasing companies. The total registered capital amounted to RMB 182 billion, and the balance of leasing contracts was about RMB 1,550 billion.
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