Finance Lease accounting in a nutshell

 

Hi All!

Today, let's finish off leases as per 2024 standards.

It's a straight-forward lease!

Covenants of this lease are:

1. Equipment value

2. Residual guarantee

3. Direct Costs

4. Incentives

Follow the steps:

1. Calculate Implicit rate

2. Calculate present value of lease payments

3. Amortize

4. Depreciate RTU & calculate DTA/DTL

5. Enter Journals

Lease initial measurements are in this video: https://youtu.be/M34ZWmg15mk

Journal entries in the books of Lessee:  https://youtu.be/iKtVbQf9W8I

Journal entries in the books of Lessor: https://youtu.be/sE-t-CYlEOY

Note: In the lessee books, due to the time constraints in making this video, I couldn't treat RTU asset. So I included them here and all you have to do is follow the below journal entries.

Journal Entries- Lessee book

Initial recognition

                                               

While making Rental Payments

Depreciation

Payment of Residual Guarantee + Direct Costs + Incentives

Journal Entries- Lessor book

Initial Recognition

                              

While receiving Rental Payments

 

    Recognizing receipt of Residual Guarantee + Direct Costs + Incentives (Income = Finance Income)

Thus, we have finished the basics of Lease accounting. 

Excel Example