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A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset.
a) The At lease commencement, the lessor removes the underlying leased asset from the balance sheet - Create Fixed asset sale document.
At lease commencement:
Derecognize the asset from the balance sheet.
Recognize a lease receivable (net investment in the lease).
Dr Lease Receivable (PV of lease payments + unguaranteed residual value)
Cr by creating a Fixed Asset Sale document. The journal entry is:
Dr: Lease Receivable
Cr: Asset (carrying amount of leased asset)
Cr: Gain on Sale / Finance Lease (if any)
During the lease term:
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, interest income on the lease receivable is recognized using the
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Other Operating Income document, which is created with Transaction Type Others, and the entry should be recorded.
Dr: Lease Receivable
Cr: Interest Income
When cash is received from the lessee
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Dr Cash
Cr , a Bank/Cash Receipt document is created with Transaction Type, Others, and the lease receivable is recorded in the Payment Details tab. The entry is:
Dr: Cash
Cr: Lease Receivable
The lessor recognizes a receivable equal to the net investment in the lease (present value of lease payments plus any unguaranteed residual value). Finance income is recognized over the lease term using a pattern that reflects a constant periodic rate of return on the net investment.
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