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Accounting for a direct financing lease
In a direct financing lease, the lessor accounts for the income from the sale over time as the lease payments are made. When the asset is leased, the lessor removes the asset's book value from its balance sheet and replaces it with a receivable equal to the book value. The internal rate of return on the asset-- the difference in cash flows from all the monthly payments less the book value of the asset when it was sold-- is used as the implied interest rate for the lease.
This arrangement is analogous to how a bank would account for a loan. Each month, the loan payment is paid, and the bank recognizes the interest portion of the payment as income and the principal portion goes to reduce the loan's balance.
As each payment is received in the direct financing lease arrangement, the lessor records income based on the implied interest portion based on the asset's internal rate of return and the remainder would be netted from the receivable on its balance sheet set up for each direct financed lease. The accounts are different, but the mechanism is very similar to the bank example.
Accounting for a sales type lease
While the direct financing accounting recognizes income over time as payments come in, the sales type lease accounts for a portion of that income immediately upon the inception of the lease, with the remainder accounted for over the term of the lease.
The lessor should recognize the gross profit from the lease immediately upon the start of the lease. The gross profit is calculated as the present value of the future cash flow from the lease less the book value of the asset at the start of the lease, discounted at the implied internal rate of return. The remaining value of the lease is then accounted for like the direct financing type as payments are received over time.
The sales type lease, therefore, allows the lessor to recognize more revenue at lease inception, while the direct financing arrangement recognizes no revenue up front but then catches up as the lease progresses.
catches up as the lease progresses. In both cases, the lessee should carry the asset on its balance sheet as a fixed asset. The lessor no longer shows the asset on its balance sheet, but instead will show the value of the financing agreement as a receivable.
FLEXIBLE AND DIVERSIFIED
Apart from the traditional leasing method, we use the customer-oriented approached to create a more structured financial leasing environment, thus designing a variety of financing products that meet the customer needs.
SERVICE THE REAL ECONOMY ASSIST IN ENTERPRISE DEVELOPMENT
The financial industry should consistently service the real economy, solving enterprise financial difficulties and by introducing Financial Leasing to enterprises, we have the advantages in helping enterprise that face different financial challenges.
Our Business Philosophy; Professional, Convenient, Honesty and Win-Win Situation by providing profession advising, simple straight through process with cultivation of integrity to bring a both win strategy to our clients.
OUR COMPANG VISION IS BECOMING THE LEADING FINANCIAL LEASING COMPANY IN THE WORLD
By developing a long-term stable strategy by enhancing the main core competitive advantage of the enterprise.
Upcoming, we will strive to build a national recognition Financial Leasing Company so as to make greater contribution to the economy and society development!