Dear Experts,

Please give your export opinion on the following query:

The Company issues lease agreement for 12 months for rent of 120000
from 1 Jan 2008 to 31 Dec 2008. The Company gives concession for 2
months from 1 Jan 2008 to 28 Feb 2008 for 20000 i.e. a customer has to
pay 100,000.

Rent Amortization : Spread 12000 monthly over 12 months
Concession : Spread over concession period 2 months 10000 monthly

Do you think that concession should have been amortized over 12 months period.

Please mention the reference of IFRS.

Best Regards,

Hemant


Hi,

As per IAS 17, the first question to ask is whether the leasing
activity is the business of this company or is it just one time
activity. Secondly, is this a finance or operating lease.

If it is company’s business, then under para 38 of IAS 17 which
applies to Finance lease, IAS does not allow to defer the expense and
the whole amount should be charged to P & L when the gain on sale is
recognized.

If this is not the main business of the company, then the discount is
added to the amount of lease receivable and thus reduce the income
under finance lease over the lease term.

Under operating lease, this amount is added to the carrying amount of
leased asset and expensed over the lease term.

Zeeshan


Dear Zeeshan
As you quoted “IAS does not allow to defer the expense”
Would you please refer the relevant IAS with para number ?

Thanks in advance

Rgds
Motaleb


Hi,If you look at the last part of Para 38 of IAS 17 reproduced below:”Costs incurred by manufacturer or dealer lessors in connection with
negotiating and arranging a lease are excluded from the definition of
initial direct costs. As a result, they are excluded from the net
investment in the lease and are recognised as an expense when the
selling profit is recognised, which for a finance lease is normally at
the commencement of the lease term”.This treatment is only when leasing is business of the company.Rgrds,Zeeshan