Case Study Essay Example | Topics and Well Written Essays - 500 words - 28

Case Study - Essay Example 3. The amount deducted each year towards depreciation on the machine is the income source from which the cost of lease is recovered. Therefore, the term of lease is equal to the period in which the value of the machine becomes zero. Minimum lease payment made on each due date is inclusive of principal as well as interest. Interest, is calculated, with respect to the diminishing balance of debt, at the same fixed rate as that at which minimum lease payment was discounted. Expenditure incurred under such costs as insurance, maintenance and taxes is shown under appropriate head in accrual or deferral accounts. In the balance sheet, the asset figures as a fixed asset with a title like ‘Leased Equipment under Capital Lease’. An equivalent liability, by way of the amount paid towards lease, is projected with a title like ‘Lease Liability’. Amount paid on the principal in the following year falls under the current part of the liability and the rest under the non-current part. 4. The present value of liability should eventually equal the aggregate of minimum lease payments projected by the lessee in the balance sheets during the following five (or less as the case may be) financial years from the time the lease agreement is enforced. 1. For Breton, the lessor, the lease arrangement is of direct financing nature. In the transaction, there is no mention of any such thing as dealer’s profit or manufacturer’s profit. Discounted present value of minimum lease payment is more than 90 per cent of the asset value at the time of commencement of lease. No problems are predicted in connection with the collectability of minimum lease payments. Nor are there any dead costs deemed to have to be borne by the lessor. 2. It is mandatory for Breton, the lessor, to document a ‘Lease Receivable’. The present value of minimum lease payments as well as the present