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hi, i want to ask that in case of manufacturer or dealers ,sale is recognized at lower of selling price or pv of MLP.But if we have pv of MLP is greater than selling price then how we will compute unearned finance incom.?
supose selling price is 100 but pv of MLP comes to 150 and GRV IS 200, then in accordance with standard the unearned finance incom is GRV- NIL which is 200-150 thats 50 unearned finance incom.
but we are recongnizing sales at 100 thenentry is
Gil 200
sales 100
unearned finance incom 100so which unearned finance income is to be taken?
Watling for reply thanksHi
Sorry, but I don’t recognise a couple of your abbreviations! GRV? NIL? Gil?
But, looking at the question, you’re suggesting that an asset costing cash price 100 will be sold to some brainless person on lease for present value of minimum lease payments of 150?
Why would anyone agree to pay money with today’s value of 150 for a 100 asset?
And what’s the 200 GRV?
I presume, from your journal entry, that Gil is the lessor’s investment in the lease – but that should be the mirror image of the lessee’s obligations under the lease. And the lessee will only be showing 100 ( ie the lower of cash price when compared with Pv of MLP )
So why is lessor showing 200 GRV ( whatever GRV is? )
oops sorry GIL is GRV.the cost price is incured by the manufacturer.selling price is normally at which the manufacturer sells .but in case if the present value of MLP is more than selling price then i am asking about what is unearned finance incom?
Hi, ok! Number 1, lessor accounting will not be asked in F7.
Number 2, lessor would debit “investment in lease” 100 ( selling cash price ) and credit “revenue” As instalments are received, the excess element over capital element repayment will be credited to a “finance income” account.
Is that enough for you?
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