Hi,

I've got to prepare some financial statements for our company to take to a bank appointment and I want them to be correct. I'm stuck with a finance lease.

The company is preparing statements for y/e 31st may 2008.( late I know, but we have been given extra time by companies house)

On march 1st 2008, the company took a finance lease on a van worth £13,295. A deposit was paid of £463.80. The lease is for 48 months with a balloon payment of £2,700 at the end of that period. The monthly payments are £299.73. I've spoken to the finance company and the company that sold the van don't know what any interest rate is.

So, I'm not sure how to correctly account for these in the accounts.

The total payments for the van over the 48 months is 48 x 299.73= 14,387.04
The balloon payment of £2,700 has to be paid if the van is sold or a new one is taken at the end of the 48 months, so the total repayble will be 14,387.04 + 2,700 = 17,087.04

Is the useful economic life of the van the 4 years of the lease?

Depreciation is to be charged 20% straight line basis. Is the £13,295 value of the van, or the £14,387.04 or the £17,087.04 to be used when calculating the depreciation, with the depreciation charge being put on the income statement?

The value of the van on the balance sheet will be minus the depreciation charge to give the net book value, correct?

under non-current liabilities, will the amount be the £17,087.04 less 3 x months at 299.73 and the deposit of £463.80?

Will the 3 x payments of £299.73 be charged to the income statement?

Thanks for any help.

I was hoping someone else who knew what they were talking about would answer this. ;) Leases can get complicated, and the rules for the UK could be different. I have a little chart that vaguely covers the differences between U.S. GAAP and "iGAAP," but it just sounds like iGAAP is more lenient about the rules of whether you should be capitalizing or not.

I'd have to spend time studying up on leases to know how to actually do this, but it's more complicated than you're trying to make it. One main thing is that you aren't accounting for the interest. And in order to do that, along with some other stuff, you need that interest rate. It's ridiculous the finance company doesn't know what it is.

I'm not sure I'd have the time to go through lease stuff and tell you exactly what you need to do, but assuming someone else comes along that does know how to do leases, you still need the interest rate. My honest suggestion would be go to your accountant on this one and make sure it's done correctly. If you want to return here, get the interest rate, and I'd suggest posting under Accounting under the business section as this isn't homework.