Accounting treatment in the books of lessor Lessor should recognize asset in the balance sheet on amount equal to net investment Account receivables 1250013 To Bank Account 1250013 (Being asset purchases and leased to lessee) End of one year Account receivables A/c 187502 To finance income 187502 (Being interest due) Interest income A/c 187502 To Profit and loss account 187502 Calculation of interest income(finance income earned) by lessor Year total amt lease rent 15% interest paid principal outstanding 1 1250013 400,000 187502 212498 2 1037515 400,000 155627 244373 3 793412 400,000 118971 281029 .4 512113 400,000 76817 323183 188930