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    Jinnys's Avatar
    Jinnys Posts: 9, Reputation: 1
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    #1

    Sep 26, 2012, 10:10 PM
    Ask accounting questions free
    Hi to all,

    I got question here that confuse me.
    A obtain machine from B without make payment. C is lease company that paid lump sum amount of machine to B. After that, A paid montly installment (principal plus interest) to C. However, after last installment paid, then A return back the machine to C.

    Is it machine consider as purchase machine (fixed asset) or rental of machine for A?

    During installment time, A is rent the machine to customer in contract term. For example,A has 5 years contract with customer and A need pay 2 years installment. After 2 years installment the machine need return to lease company. Then A find third party,D to buy the machine. A and D is under same boss. Even machine buy by D but A still rent machine to customer under A name.The rental is received by A.

    Can D sell the machine to A so that the machine can rent back to customer?

    Thank you.
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    #2

    Sep 26, 2012, 11:27 PM
    How about you tell us what you think and we will discuss it with you
    Jinnys's Avatar
    Jinnys Posts: 9, Reputation: 1
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    #3

    Sep 27, 2012, 12:31 AM
    I think the machine should consider as rental of machine for A because it possibly that rent machine from C to generate rental income. The machine may not be fixed asset because at the end of installment paid the machine will return to B.

    A company going on rent the machine to customer even the machine is brought by other. I think A should buy the machine from D in order to continuous rent to customer. After A purchases the machine only the machine consider as fixed asset of A company.

    Please advice on the above,I really confuse about that.
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    #4

    Sep 27, 2012, 06:03 AM
    Quote Originally Posted by Jinnys View Post
    I think the machine should consider as rental of machine for A because it possibly that rent machine from C to generate rental income. The machine may not be fixed asset because at the end of installment paid the machine will return to B.

    A company going on rent the machine to customer even the machine is brought by other. I think A should buy the machine from D in order to continuous rent to customer. After A purchases the machine only the machine consider as fixed asset of A company.

    Please advice on the above,i really confuse about that.
    In the first instance the machine is a lease and not part of fixed assets. There was no equity generated There is a school of accounting that thinks that it should be accounted as a fixed asset but that is radical thinking

    The second situation is there a sub lease generating revenue. I still don't see the situation is different
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