lease agreements

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
Did anyone know the answer to the lease question? I've looked in the text books and I can't find anything!!!!

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    Operating lease is a short term lease which may be hired to lots of different leasees, and a finance lease is a long term lease with really only one leasee
  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    I couldn't believe that ther was a question on leases when I did my first read through. I didn't reveise this at all and took a flying guess at what the answer might be.<BR><BR>I waffled about wanting to know values and regularity of payments, and said that i needed to know whether the equipment would constitute as an asset.<BR><BR>I had a look in my text book the minute I got out of the exam room and it said that the finance lease was angainst a fixed asset financed by a lease (therfore Balance sheet) and the operating lease was more like a rental agreement (therefore expense in profit/loss).<BR><BR>Still a bit hacked off that we did not touch on this at all in class.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    Finance lease:<BR>Def: A lease whereby the lessee gains all the benefits from the asset and also be fully responsibled for the asset (eg for maintenance), usually for the whole of its economic life, but will never be the legal owner.<BR>treated like buying an asset.<BR>Debit equipment a/c with cost<BR>Credit a creditor a/c (obligations under finance lease I think it's called) with cost<BR>Depreciate equipment yearly as with other assets<BR>When each installment of payment is made, the proportion which is interest is treated as expense-> P+L<BR>The rest debit into the creditor a/c until balance is paid off<BR><BR>Operational lease:<BR>treated like expense. e.g. credit Bank with payment, debit expense a/c(lease payment) which is then charged to the P+L
  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    As long as you mentioned SSAP21 - Accounting for Leases and Hire Purchase, you would have got alot of brownie points.<BR><BR>Andy
  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    I must admit I didnt expect any thing on lease agreements so I didnt revise anything on this. Even my teacher didnt say anything about leases. I just guessed my answer but I didn't write a lot. Do you lose marks for the amount you write in your answers?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    I explained the differences and how they were treated differently in the P&L and Balance Sheet, but didn't quote "SSAP 21". Could kick myself now! I quoted most of the stuff contained in it, but not the actual SSAP number. Damn
  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    <br><br><< <i>I explained the differences and how they were treated differently in the P&L and Balance Sheet, but didn't quote "SSAP 21". Could kick myself now! I quoted most of the stuff contained in it, but not the actual SSAP number. Damn</i> >><br><br><BR><BR>Snap - I revised leases because I thought they might come up in a short question so I produced what I thought was a text book answer. Unfortunately, like yourself, I omitted to mention SSAP 21. I knew it was SSAP 21 aswell - It just didn't occur to me to refer to it in my memo.<BR><BR>Oh well - such is life! Hopefully, it won't make much difference in the great scheme of things.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    lease agreements

    I didn't mention SSAP 21 either - but i don't think that was relevant as it was supposed to be a memo to the business owner - they wouldn't know what it was probably! We just had to explain the difference and get them to confirm which type of lease it was - so just to show our understanding of it

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