TWO methods of lease payments:

(1) The first method: The amount of (principle) is paid periodically, the interest over a
period is calculated based on the remaining principle of each period. In this way,
the amount of lease cost (principle) must be paid in every period is calculated as
follow:
Amount of lease principle paid per period= Total amount of lease principle/
Number of payment periods
The interest is calculated based on the remaining principle of each period,
complying with defined fixed interest of the lease contract.
(2) The second method: Payment is made similarly to installments, payment per
period includes that periods principle and interest calculated and paid on fixed
annuity.
In this way, lease payment per period is calculated in order that:
n

rs

i
G=
(1+r )n
i=1 (1r)

G: Fair value of financial lease asset in lease contract

a: lease payment on fixed annuity/ period
r: default rate (unchanged during the lease period)
n: number of payment periods
rs: residual value (the remaining value of the asset at the end of its lease contract,
which is defined right after signing the contract)
Lease rate: The rate which can be recorded publicly in the lease contract or the
default rate which is calculated by the contracts partners, based on other agreed
factors such as: total amount of lease payment and the amount of lease payment
per period.
In terms of finance, the financial lease assets value (which was recorded in the
lease contract) at the time of being transferred is equal to its fair value at the time

of being transferred. In other words, it is equal to the net present value of future
cash flow payments plus its residual value discounted based on default rate.

Assets
full
value in the
lease
contract
(fair value)

1st
periodical + nth
periodical + residual value at
the end of lease
payment +
payment
contract
Discounted based on default rate