Capital Asset Purchase and Rental

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Asnake E
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Joined: 02 Oct 2019, 03:28

Capital Asset Purchase and Rental

Post by Asnake E »

A company signs a Capital asset purchase and rental agreement with a bank. As per the agreement

1. The company (the lessee) paid 20% of the price of the asset to the bank's blocked account
2. The bank(the lessor) shall pay for the purchase price of the machinery
3. The lessee shall pay monthly rental, service charges and interest to the bank for five years
4. The lessee shall have ownership over the machinery to the extent of the 20% paid and the monthly rental payments
5. The ownership of the machine shall be transferred to the lessee after the completion of the five year monthly rental payments

How should the company account for this arrangement ?
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Marek Muc
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Re: Capital Asset Purchase and Rental

Post by Marek Muc »

What is your suggestion in light of IFRS 16 and what are your doubts specifically?
Asnake E
Posts: 213
Joined: 02 Oct 2019, 03:28

Re: Capital Asset Purchase and Rental

Post by Asnake E »

Thank you for the reply.

My doubts is whether the control of the asset ish actually transferred to the lessee
The agreement (we can call it the hire purchase agreement) also includes the following clauses
a. The machine is purchased in the name of the lessor
That the lessee should use the machine for specific purposes specified in the agreement
b. The lessee can not sale or transfer the asset to any other party
c. The lessee can not pledge the asset as collateral for it's loans
d. The lessee can not modify/improve the asset in any form
e. That in case of default by the lessee in paying the monthly rentals, the lessor can take back the asset
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Marek Muc
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Re: Capital Asset Purchase and Rental

Post by Marek Muc »

Well, these seem to be pretty standard lease conditions ;)

You need to answer these two questions:
https://ifrscommunity.com/knowledge-bas ... c-benefits
https://ifrscommunity.com/knowledge-bas ... ct-the-use
Asnake E
Posts: 213
Joined: 02 Oct 2019, 03:28

Re: Capital Asset Purchase and Rental

Post by Asnake E »

Thank you. I will go through the material
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