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MGT401 Financial Accounting II GDB 2 Solution Spring 2014

Objective of this discussion is to enable students to get in depth knowledge of different types of leasing. Real time scenarios are developed to distinguish the differentiate types of leasing according to nature and types of agreement.
Learning outcomes:
After this valuable discussion students will be able to compare, distinguish and relate two major types of leasing and able to understand nature of agreement that is necessary to declare an agreement as a leasing agreement.

(A) Firdous limited is intended to acquire an asset for one season that is consisted of 6 months. Hefty amount is needed to acquire the asset so, company decided to acquire it on lease. After six month period, leasing agreement will be expired without any possession.
(B) PK Plus limited acquire asset on lease from Damas leasing company. PK plus has an option to purchase the asset at end of lease term, on below its fair price.
(C) Admiral limited got an asset on lease. According to the expert the economic useful life of asset is not more than 12 years. Whereas, term of lease is for 10 years. Furthermore, company has no intention to purchase the asset at the end of lease term.
(D) Pine Corporation acquired an asset on lease without intention to purchase it at expiry of series of rental payments. Fair value of asset is Rs.100,000 and rental payment is Rs.80,000.
Requirement: From above given scenarios identify types of lease with proper reasoning.

Answer: 

A OPERATING

B FINANCE

C OPERATING

D Finance

2. Jade company Ltd. acquired an assets form its associated company BBG. Jade company will use the asset for 6 year and will pay monthly installments to BBG Requirement: Is this agreement is lease agreement? Discuss.

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