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Leases and lease structures - Essay Example
Finance & Accounting
Pages 3 (753 words)
Leases and lease structures Name: Institution: Subject: Date: A lease contract in this concept has been defined as a contract that gives the lessee the right to use the lessor equipment in our case the trailers for a specified period of time at a specified amount of lessee payments…
The lessee gets full control of the asset so leased and makes payments on monthly basis or as the contract specifies. The lessee gets right over tax benefits of interest and depreciation without violating the rights of the lessor. The lease arrangement is a form of sourcing for finance for a contractor. The contract should clearly indicate the specified assets to be leased, the size and even the cost and period of time it will be used. The period of contracting is non-cancellable. However, the options of extending or terminating the lease are and should be discussed and put on the contract. This opens room for reassessment of the terms of the contract. The lessee should account for a lease at the initial stage as an a liability since he is under obligation to pay the interests and also recognize the specified item as an asset since he has control over the assets. This should be recorded at the present value of the lease amount to be paid eventually. The value of the lease is thus calculated by discounting the total amount of lease payments being made. Leases structures Sales type lease – this lease arrangement transfers all risks and benefits for using the specified asset to the lessee i.e. the contractor. This is determined when the carrying amount of the assets is different from the fair value being offered by the lessor. ...
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