Unit 5 Accounting Ssap 21

AISHA
AISHA Registered Posts: 1 New contributor ?
Hi,

Please may anyone help me revealing what SSAP 21 states?

Thanks in advance.

Aisha:001_smile:

Comments

  • George Tse
    George Tse Registered Posts: 241 ? ? ?
    Hi

    SSAP 21 is accounting for leases and hire purchase

    there are finance leases and operating leases the diffrence between the 2 is the term of the contract e.g. anthing over 1 year will be a finance lease since most of the time any thing over a year is classed as long term.
    an operating lease will b short term. a finance lease will have to be included in to the balance sheet as an asset tho.
  • visha
    visha Registered Posts: 218 ? ? ?
    Hi Gentle Jesus

    I am very interested in your defination of short-term lease (less then 1 year) and a long term lease (more then 1 year). I would be grateful for the source!

    My understanding for an oeration lease is that it is a short-term lease- What is short term? I don't know.

    Operating lease is treated as revenue expenditure and not capital expenditure. For example a 3 year leasing of a photocopying m/c's rent is treated as a revenure expeniture and charged to profit and loss account.

    An Operating Lease lets you benefit from an asset whilst the asset finance lender takes the risk of it loosing its value or becoming obsolete. You get the full use of the asset as long as you need it, but you have to pay rent for it. Then, at the end of the term, the finance provider keeps the asset.

    Finance leasing is a long term lease. What is long term? But You may realise some value at the end of the term. With finance leasing, the asset finance lender retains ownership of the assets purchased, but you can sell them on their behalf at the end of the term and keep most of the proceeds.

    Finance lease is for the capital expenditure and therefore FRS15 applies to it. You can not charge the rent for the finance lease to profit and loss but MUST depreciate the assest and charge the depreciation to profit and loss as an expense for the use of the asset.

    see this website http://www.vantisplc.com/Vantis/Services/AssetFinance/FinanceLease.htm
  • visha
    visha Registered Posts: 218 ? ? ?
    Found the definition of the short term

    a finance lease may be written for a term which is significantly shorter than the useful economic life of the asset

    http://www.hmrc.gov.uk/manuals/bimmanual/BIM61145.htm

    Short-term, cancelable lease. A type of lease in which the contract period is shorter than the life of the equipment, and the lessor pays all maintenance and servicing costs.

    http://www.advfn.com/money-words_term_3461_operating_lease.html
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