Lessor accounting – operating lease – ACCA (SBR) lectures
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Having given the lessee an incentive of rent free for the first year, kindly advise the invoice values the lessor is supposed to issue to the lessee for the subsequent years as per agreement?
Hi
Could you please help with journal entries for the following lease transaction?
A customer signed a $1,200 lease contracts to be paid monthly and the lease term is 12 months. What are the Journal Entries ?
In Month 2 customer decided not to pay ( default )
Many thanks for your help
Mahmood
Hi Tutor,
For me, I would prefer to recognize the rental income of $2000 in years 2-4 as the question specifically mentioned that the free period is the first year. Is this method correct?
I supposed you should have recognized the rental income of $1500 each from year 1 through the year if the question ignored the free period as year 1. Kindly confirm this same understanding.
Why haven’t you considered time value of money here.
accrued income will be charged as $1500 in the first year but should be charged as $500 for the remaining 2-4 years.
@ayeshazain It’s not a charge. We created a fictitious asset by the name of accrued income. By crediting the rental income and debiting accrued income. This is done because our first year is rent free and we didn’t recieve any cash. From second year onwards as we start receiving cash we keep using up this asset by crediting it.