by Corporate-practice-bd |
Ans:-
A Finance lease, well-known as a capital lease or sales-types -lease whereas, a finance company is the owner of the asset, gives another person the right to use said asset against lease terms & conditions especially, for rental payment. The owner of the leased asset is known as lessor and the user is called the lessee.
As per the" International Accounting Standard" (IAS-17), there are two types of lease, which are as follows.
01. Finance Lease:-
02. Operating lease: -
According to the " International Accounting Standard" (IAS-17), an operating lease is defined as being any lease other than a finance lease.
under, a operating lease, the lessors can, not transfer, substantially all kinds of risks and rewards of ownership of assets to the lessee against periodically rental payment. The user of the leased asset does not have the right to purchase the asset after the end of the lease period.
Advantages of Finance Lease
In lessors, perspectives are summarized below
01. Assured
Regular Income:
02. Preservation of
Ownership:
03. Tax Benefit
05. High Potentiality
of Growth:
06. Recovery of Investment:
To Lessee:
The advantages of
lease financing from the point of view of the lessee are discussed below:
01. Use of
Capital Goods:
03. Technical
Assistance:
04. Inflation Friendly:
05. Ownership:
Let's start with accounting treatment of lease, finance.
Say for example,
ABC, a 100% export-oriented group of a company, is currently applying to the " XYZ Bank "for approval of the lease Finance facility of TK.90,00,000.000 (total purchase price of the leased asset tk.95,00,000.000@12.50% interest PAQ for the period of 05(five) years, also attached required document with the application. Application date. 25.01.2016.
Recently Bank replies to the application.
Dear sir,
we are very exciting With Reference to your application, we would like to inform you that, the management of our bank has accorded approval for a section of lease finance facility for tk.90.00Lac@12.50% interest PAQ for the period of 05(five) years, in the name of ABC company LTD.
Our terms and condition are as follows.
01. Interest rate (flexible):- 12.50% interest PAQR (subject to revision from time to time as per instruction and decision of the bank management. An additional 2% interest will be charged in case of any overdue lease rent installment.
02. Others charges:-As per Prevailing schedule of charges.
03. Mode of disbursement:- disbursement will be made direct to the supplier through A/C payee payment order.
04. Mode of repayment:- Payment by 60(sixty) equal monthly lease rental to be started from the following month of creation of lease finance facility and full liability to be adjusted within the validity. If any excess/shortfall amount there to be adjusted with the last installment from sales process or own sources.
05. Monthly lease rent:- tk.2,02,481.000(Tk. two lac two thousand four hundred eighty-one) per month.
06. Advance lease deposit:- Nil
07. Validity:-05(five) years from the date of creation of lease finance facility
08. Grace period:- nil
09. Loan processing fee:- Tk.15,500,000 to be realized before disbursement of the loan.
10. Handling charge:-0.25% of lease Amount i.e.Tk.22, 500.000 to be realized before disbursement of the loan.
11. Salvage Value:-0.30 %of lease Amount i.e.Tk.27, 000.000 to be realized at the time of transferring the ownership of the loan asset in favor of the lessee.
Step-01.Create Amortization schedule in Excel of lease finance
Loan amount=TK.90, 00,000.000
Interest rate =12.50%
Term (Year) = 5
No of period = 60 months
Period
|
Monthly payments
|
Cumulative payments
|
Interest
|
Cumulative interest
|
Principal
|
Cumulative principal
|
Outstanding balance
|
Interest Rate |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
90,00000 |
0 |
01 |
202481 |
202,481 |
TK93750. |
TK93750. |
108,731 |
TK108731. |
8,891,269 |
46% |
02 |
202481 |
404,963 |
TK92617. |
TK186367. |
109,864 |
TK218596. |
8,781,404 |
46% |
03 |
202481 |
607,444 |
TK91473. |
TK277840. |
111,008 |
TK329604. |
8,670,396 |
45% |
04 |
202481 |
809,926 |
TK90317. |
TK368157. |
112,165 |
TK441769. |
8,558,231 |
45% |
05 |
202481 |
1,012,407 |
TK89148. |
TK457305. |
113,333 |
TK555102. |
8,444,898 |
44% |
06 |
202481 |
1,214,889 |
TK87968. |
TK545273. |
114,514 |
TK669616. |
8,330,384 |
43% |
07 |
202481 |
1,417,370 |
TK86775. |
TK632048. |
115,707 |
TK785322. |
8,214,678 |
43% |
08 |
202481 |
1,619,852 |
TK85570. |
TK717617. |
116,912 |
TK902234. |
8,097,766 |
42% |
9 |
202481 |
1,822,333 |
TK84352. |
TK801969. |
118,130 |
TK1020364. |
7,979,636 |
42% |
10 |
202481 |
2,024,814 |
TK83121. |
TK885090. |
119,360 |
TK1139724. |
7,860,276 |
41% |
11 |
202481 |
2,227,296 |
TK81878. |
TK966968. |
120,604 |
TK1260328. |
7,739,672 |
40% |
12 |
202481 |
2,429,777 |
TK80622. |
TK1047590. |
121,860 |
TK1382188. |
7,617,812 |
40% |
13 |
202481 |
2,632,259 |
TK79352. |
TK1126942. |
123,129 |
TK1505317. |
7,494,683 |
39% |
14 |
202481 |
2,834,740 |
TK78070. |
TK1205012. |
124,412 |
TK1629729. |
7,370,271 |
39% |
15 |
202481 |
3,037,222 |
TK76774. |
TK1281785. |
125,708 |
TK1755436. |
7,244,564 |
38% |
16 |
202481 |
3,239,703 |
TK75464. |
TK1357249. |
127,017 |
TK1882454. |
7,117,546 |
37% |
17 |
202481 |
3,442,185 |
TK74141. |
TK1431390. |
128,340 |
TK2010794. |
6,989,206 |
37% |
18 |
202481 |
3,644,666 |
TK72804. |
TK1504195. |
129,677 |
TK2140471. |
6,859,529 |
36% |
19 |
202481 |
3,847,147 |
TK71453. |
TK1575648. |
131,028 |
TK2271499. |
6,728,501 |
35% |
20 |
202481 |
4,049,629 |
TK70089. |
TK1645737. |
132,393 |
TK2403892. |
6,596,108 |
35% |
21 |
202481 |
4,252,110 |
TK68709. |
TK1714446. |
133,772 |
TK2537664. |
6,462,336 |
34% |
22 |
202481 |
4,454,592 |
TK67316. |
TK1781762. |
135,165 |
TK2672830. |
6,327,170 |
33% |
23 |
202481 |
4,657,073 |
TK65908. |
TK1847670. |
136,573 |
TK2809403. |
6,190,597 |
33% |
24 |
202481 |
4,859,555 |
TK64485. |
TK1912156. |
137,996 |
TK2947399. |
6,052,601 |
32% |
25 |
202481 |
5,062,036 |
TK63048. |
TK1975203. |
139,434 |
TK3086833. |
5,913,167 |
31% |
26 |
202481 |
5,264,518 |
TK61595. |
TK2036799. |
140,886 |
TK3227719. |
5,772,281 |
30% |
27 |
202481 |
5,466,999 |
TK60128. |
TK2096927. |
142,354 |
TK3370072. |
5,629,928 |
30% |
28 |
202481 |
5,669,480 |
TK58645. |
TK2155572. |
143,836 |
TK3513908. |
5,486,092 |
29% |
29 |
202481 |
5,871,962 |
TK57147. |
TK2212719. |
145,335 |
TK3659243. |
5,340,757 |
28% |
30 |
202481 |
6,074,443 |
TK55633. |
TK2268352. |
146,849 |
TK3806092. |
5,193,908 |
27% |
31 |
202481 |
6,276,925 |
TK54103. |
TK2322455. |
148,378 |
TK3954470. |
5,045,530 |
27% |
32 |
202481 |
6,479,406 |
TK52558. |
TK2375012. |
149,924 |
TK4104394. |
4,895,606 |
26% |
33 |
202481 |
6,681,888 |
TK50996. |
TK2426008. |
151,486 |
TK4255879. |
4,744,121 |
25% |
34 |
202481 |
6,884,369 |
TK49418. |
TK2475426. |
153,064 |
TK4408943. |
4,591,057 |
24% |
35 |
202481 |
7,086,851 |
TK47824. |
TK2523250. |
154,658 |
TK4563601. |
4,436,399 |
24% |
36 |
202481 |
7,289,332 |
TK46212. |
TK2569462. |
156,269 |
TK4719870. |
4,280,130 |
23% |
37 |
202481 |
7,491,813 |
TK44585. |
TK2614047. |
157,897 |
TK4877766. |
4,122,234 |
22% |
38 |
202481 |
7,694,295 |
TK42940. |
TK2656987. |
159,542 |
TK5037308. |
3,962,692 |
21% |
39 |
202481 |
7,896,776 |
TK41278. |
TK2698265. |
161,203 |
TK5198511. |
3,801,489 |
20% |
40 |
202481 |
8,099,258 |
TK39599. |
TK2737864. |
162,883 |
TK5361394. |
3,638,606 |
20% |
41 |
202481 |
8,301,739 |
TK37902. |
TK2775766. |
164,579 |
TK5525973. |
3,474,027 |
19% |
42 |
202481 |
8,504,221 |
TK36188. |
TK2811954. |
166,294 |
TK5692267. |
3,307,733 |
18% |
43 |
202481 |
8,706,702 |
TK34456. |
TK2846409. |
168,026 |
TK5860293. |
3,139,707 |
17% |
44 |
202481 |
8,909,184 |
TK32705. |
TK2879115. |
169,776 |
TK6030069. |
2,969,931 |
16% |
45 |
202481 |
9,111,665 |
TK30937. |
TK2910051. |
171,545 |
TK6201614. |
2,798,386 |
15% |
46 |
202481 |
9,314,146 |
TK29150. |
TK2939201. |
173,332 |
TK6374945. |
2,625,055 |
14% |
47 |
202481 |
9,516,628 |
TK27344. |
TK2966546. |
175,137 |
TK6550082. |
2,449,918 |
14% |
48 |
202481 |
9,719,109 |
TK25520. |
TK2992066. |
176,961 |
TK6727044. |
2,272,956 |
13% |
49 |
202481 |
9,921,591 |
TK23677. |
TK3015742. |
178,805 |
TK6905849. |
2,094,151 |
12% |
50 |
202481 |
10,124,072 |
TK21814. |
TK3037556. |
180,667 |
TK7086516. |
1,913,484 |
11% |
51 |
202481 |
10,326,554 |
TK19932. |
TK3057488. |
182,549 |
TK7269065. |
1,730,935 |
10% |
52 |
202481 |
10,529,035 |
TK18031. |
TK3075519. |
184,451 |
TK7453516. |
1,546,484 |
9% |
53 |
202481 |
10,731,517 |
TK16109. |
TK3091628. |
186,372 |
TK7639888. |
1,360,112 |
8% |
54 |
202481 |
10,933,998 |
TK14168. |
TK3105796. |
188,314 |
TK7828202. |
1,171,798 |
7% |
55 |
202481 |
11,136,479 |
TK12206. |
TK3118002. |
190,275 |
TK8018477. |
981,523 |
6% |
56 |
202481 |
11,338,961 |
TK10224. |
TK3128226. |
192,257 |
TK8210735. |
789,265 |
5% |
57 |
202481 |
11,541,442 |
TK8222. |
TK3136448. |
194,260 |
TK8404994. |
595,006 |
4% |
58 |
202481 |
11,743,924 |
TK6198. |
TK3142646. |
196,283 |
TK8601278. |
398,722 |
3% |
59 |
202481 |
11,946,405 |
TK4153. |
TK3146799. |
198,328 |
TK8799606. |
200,394 |
2% |
60 |
202481 |
12,148,887 |
TK2087. |
TK3148887. |
200,394 |
TK9000000. |
0 |
1% |
Step-02.Received lease finance loan to our CD Account say for(10248) dt.28.02.2016
CD -Account say for(10248) Debit -TK.90,00,000.000
Lease finance loan Account(say for-2526-3242) Credit -TK.90,00,000.000
Description(To record creation of lease finance loan by receiving the amount)Tk.90(lac).
Step-03.Installment payment for the month (March to June-2016)
Interest on lease finance debit TK.3,68,157.000
Lease finance loan Account(say for-2526-3242) credit -TK.4,41,769.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
(See cumulative interest with period =04)
Description(To record Interest charged for the month (March to June-2016).
Step-04.Installment payment for the month (July to October-2016)
Interest on lease finance debit TK.3,49,460.000
Lease finance loan Account(say for-2526-3242) credit -TK.4,60,466.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
(See cumulative interest with period =04)
Description(To record Interest charged for the month (March to June-2016).
Step-05.Installment payment for the month (November to February-2017)
Interest on lease finance debit TK.329973.000
Lease finance loan Account(say for-2526-3242) credit -TK.479952.000
To CD -Account say for(10248) Credit -TK.8,09,926.00
Description(To record Interest charged for the month (November to February-2017
Step-06.Installment payment for the month (March to June-2017)
Interest on lease finance debit TK.309659.000
Lease finance loan Account(say for-2526-3242) credit -TK.500267.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (March to June-2017)
Step-07.Installment payment for the month (July to October-2017)
Interest on lease finance debit TK.288488.000
Lease finance loan Account(say for-2526-3242) credit -TK.521438.000
To CD -Account say for(10248) Credit -TK.8,09,926.00
Description(To record Interest charged for the month (July to October-2017)
Step-08.Installment payment for the month (November to February)-2018
Interest on lease finance debit TK.266419.000
Lease finance loan Account(say for-2526-3242) credit -TK.543507.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (November to February)-2018
Step-09.Installment payment for the month (March to June-2018)
Interest on lease finance debit TK.243416.000
Lease finance loan Account(say for-2526-3242) credit -TK.566509.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (March to June-2018
Step-10.Installment payment for the month (July to October-2018)
Interest on lease finance debit TK.219440.000
Lease finance loan Account(say for-2526-3242) credit -TK.590486.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (July to October-2018
Step-11.Installment payment for the month (November to February)-2019
Interest on lease finance debit TK.1,94,450.000
Lease finance loan Account(say for-2526-3242) credit -TK.6,15,476.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month(November to February)-2019
Step-12.Installment payment for the month (March to June-2019)
Interest on lease finance debit TK.168402.000
Lease finance loan Account(say for-2526-3242) credit -TK.641524.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (March to June-2019
Step-13.Installment payment for the month (July to October-2019)
Interest on lease finance debit TK.141251.000
Lease finance loan Account(say for-2526-3242) credit -TK.668675.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (July to October-2019)
Step-14.Installment payment for the month (November to February)-2020
Interest on lease finance debit TK.112951.000
Lease finance loan Account(say for-2526-3242) credit -TK.696974.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (November to February)-2020
Step-15.Installment payment for the month (March to June-2020)
Interest on lease finance debit TK.83453.000
Lease finance loan Account(say for-2526-3242) credit -TK.726473.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (March to June-2020).
Step-16.Installment payment for the month (July to October-2020)
Interest on lease finance debit TK.52707.000
Lease finance loan Account(say for-2526-3242) credit -TK.757219.000
To CD -Account say for(10248) Credit -TK.8,09,926.0
Description(To record Interest charged for the month (July to October-2020)
Step-17.Installment payment for the month (November to February)-2021
Interest on lease finance debit TK.20,661.000
Lease finance loan Account(say for-2526-3242) credit -TK.7,89,265.000
To CD -Account say for(10248) Credit -TK.8,09,926.000
Description(To record Interest charged for the month (November to February)-2021
Summary of of loan Lease finance:-
Lease finance loan Account was (say for-2526-3242) TK.90,00,000.000
Add: Interest charged TK. 3148887.000
(368157+349460+329973+309659+288488+266419+243416+219440+194450+168402+141251+112951+83453+52707+20661)
Total Capitalized loan of of loan Lease finance TK.=1,21,48,887.000
Less: Sixty(60) Installment payment(202481*4)=809926*15TK.=(1,21,48,887.000)
Balance of Lease finance loan Account(say for-2526-3242)=Nil.......
"The End"