Van Lease - Finance or Operating?

Hi I am new to bookkeeping and unsure of how to record a new van in my clients business.
They have a 36 month agreement and are then giving the van back. The initial deposit is equal to 9months payments and then 35 monthly payments. Am I right in classing this as an operating lease as they are not keeping the van at the end?

Also how do I record the monthly payments and deposit in the accounts?

Thanks

Comments

  • alberetoalbereto Posts: 4MAAT, AAT Licensed Accountant
    I would check the paperwork. Assuming it says Contract Hire agreement (which is an Op Lease) then expense the deposit and monthly rentals.
  • IrrorateIrrorate Posts: 140Registered
    I'm not sure we can determine if it's an op lease just based on that alone. You'd need to read IAS17 and determine how to classify it - things like risk and reward, is it a new van or is it second-hand and you're going to run it to end of life? etc.
  • mskaatmskaat Regular Greater LondonPosts: 53MAAT, AAT Licensed Accountant
    edited October 2017
    she11 said:

    Hi I am new to bookkeeping and unsure of how to record a new van in my clients business.
    They have a 36 month agreement and are then giving the van back. The initial deposit is equal to 9months payments and then 35 monthly payments. Am I right in classing this as an operating lease as they are not keeping the van at the end?

    Also how do I record the monthly payments and deposit in the accounts?

    Thanks

    The second question first.
    It depends on whether it is finance lease or an operating lease.

    >>Finance lease>> capitalised
    >>Operating lease>> expensed

    The first question, If the risks and rewards of the leased equipment are substantially transferred to the lessee (one who obtains the right of use of the equipment) then it is finance lease, otherwise it is an operating lease.

    MAAT
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