Describe the accounting and reporting for special features of lease arrangements.
Describe the accounting and reporting for special features of lease arrangements.
Special features of lease arrangements:
- Residual type
- Sale type leases
- Bargain purchase option
- Initial direct cost
Residual value: Residual value means estimated realized value of an asset at end of its useful life.
In leases, there are two types of residual value those are guaranteed residual value and Unguaranteed residual value. The residual value of leases is adjusted for computing annual lease rental payments. The guaranteed residual value of the lease asset is adjusted in lease rental payments for certainty in the realization of value.
The unguaranteed residual value of lease had no effect on the computation of annual lease rental payments as there is no certainty in the realization of residual value. So, for unguaranteed residual value lease payments, the residual value is treated as zero for the computation of annual lease payments.
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