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Hello,
Could you please advise whether I understand correctly that when a lessor buys the PPE (property, plant or equipment ) for purpose of lease it recognises it as normal PPE on the Balance Sheet as if lessor planned to use it themselves. Journal entry: Dr PPE Cr Bank.
When the PPE is leased as operating lease it stays on the BS as PPE and depreciated on a straight line basis over useful life of the PPE (unless land) I.e. from initial recognition perspective and depreciation perspective operating lease is treated as normal PPE for own use. Correct?Thank you in advance.
Hi,
If the lessor leases the asset under an operating lease, the lessor maintains the risk and rewards of ownership and so will keep the asset in its books and record rental income.
If the lessor leases the asset under a finance lease, the lessor no longer has the risk and reward of ownership and no longer recognises the asset in its books. It will remove the asset (CR PPE) and recognise a lease receivable (DR Receivable).
Hope that clears it up for lessor accounting.
Thanks
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