B&P Ltd availed a lease from N&L Ltd. The conditions of the lease terms are as under:
Question:
B&P Ltd availed a lease from N&L Ltd. The conditions of the lease terms are as under:
(i) Lease period is 3 years in the beginning of the year 2011 for equipment costing ₹10,00,000 and has an expected useful life of 5 years.
(ii) The fair market value is also ₹10,00,000.
(iii) The property reverts back to the lessor on termination of the lease.
(iv) The unguaranteed residual value is estimated at ₹1,00,000 at the end of the year 2013.
(v) 3 equal annual payments are made at the end of each year. Consider IRR = 10%. The present value of ₹1 due at the end of 3rd year at 10% rate of interest is ₹0.7513. The present value of annuity of ₹1, due at the end of 3rd year at 10% IRR, is ₹2.4868. State whether the lease constitute finance lease and also calculate unearned finance income.
Step by Step Answer:
Corporate Accounting As Per The Companies Act 2013 Including Rules 2014 And 2015
ISBN: 9789352605569
2nd Edition
Authors: M Hanif, A Mukherjee