op

Time Pd
MLP
Rate
Due
Deffered
Fair Mkt Value
90% of FMV
Incremental borrowing rate
Implicit charged rate

Incremental borrowing rate

Implicit charged rate by lessor

cap L

10
10
10
15
15
17.7
12%
10%
12%
Rs. 94.92 Rs. 101.39 Rs. 112.01 assume SLM for 10yrs : Deprn = 8.475
Rs. 84.75 Rs. 92.17 Rs. 100.01 Lease Hold debt obligation in the books of the Lessee u
100
100
100
90
90
90
satsf Cond 4
16%
10%
12%
12%
Operating lease
Capital Lease
10%
12%

Impact on oncome statement of the lessee.

Ebit will be lower by 8.475.
Interest amt of 12% of PV
Rs. 12.00

Assuming the Lessor Deserves at least a fair MV as the PV of the future MLPs and also assuming that interest rate charged by
17.698
Rs. 85.54

16%

s : Deprn = 8.475
ation in the books of the Lessee under borrowings.

The fair mkt value of asset is 10Crs , lease pd is 10yrs, annual min lease
payments - 15Crs. Analyse if condition 4 is satisfied or not , assuming that
the MLPs need to be discounted at 10% P.a.

NOTE
For Testing condition no. 4 , while calulating the PV of MLPs , the
discounting factor as per accounting laws has to be the lower of the
implicit interest rate charges by the lessor or the incremental borrowing
rate of the lessee.

ming that interest rate charged by the lessor to be reasonalble at 12% how much MLP must the lessor charge.

min lease
ssuming that

LDO
Interest
Principal
Outstanding
Depreiciation

1
Rs. 100.01
12.00
2.9989263
97.01
10.001

2
97.01
11.64
3.36
93.65
10.001

3
93.65
11.24
3.76
89.89
10.001

4
89.89
10.79
4.21
85.68
10.001

5
85.68
10.28
4.72
80.96
10.001

6
80.96
9.71
5.29
75.67
10.001

7
75.67
9.08
5.92
69.75
10.001

Loan Ammortization Schedule

Amt paid to interest
Total depriciation
Total Cost

LDO
Interest
Principal
Outstanding
Depreiciation
Amt paid to interest
Total depriciation
Total Cost

97.37
100.0089
197.3816

EBIT margin of a finance lease will be higher than ebit of Margin le

1
2
3
4
Rs. 100.00
94.302 87.92024 80.77267
12 11.31624 10.55043 9.69272
5.698 6.38176 7.147571 8.00528
94.302 87.92024 80.77267 72.76739
10
10
10
10

5
72.76739
8.732087
8.965913
63.80148
10

6
63.80147574
7.656177089
10.04182291
53.75965283
10

7
53.75965
6.451158
11.24684
42.51281
10

76.98731
100
176.9873

Direct cost of producing the asset for the lessor was 80.
Entry into books :
Net Ivestment in lease
100
Interest income after 1 yr
12

If the same txn is to be in the books of Lessee

0
G.P
Rs. 20.00
Credit Investment
Credit Innterest Income
Net Investment in the lease

8
69.75
8.37
6.63
63.12
10.001

9
63.12
7.57
7.43
55.70
10.001

10
55.70
6.68
8.32
47.38
10.001

e higher than ebit of Margin lease.

8
42.51281
5.101537
12.59646
29.91635
10

9
10
29.91635 15.80831
3.589962 1.896997
14.10804
15.801
15.80831 0.007308
10
10

Assuming LDO of 1000 , payments of 17.69

INCOME STATEMENT:
2

10