Handling residuals during evergreen term of Direct Finance/Sales Type leases – Neopost
We are to exploring the option customizing the handling of the residual at the end of term of a direct finance/sales type lease.
These are the two options we are considering:
Option 1a: Reclassify the lease when evergreen period begins and depreciate the investment in operating lease
a) When lessee rolls over into evergreen, classify the lease as an operating lease.
b) Reclass the residual to a net investment in rental asset account.
c) Depreciate the residual over a predetermined amount of time using straight line methodology. (Depreciable life TBD)
d) Each month we would record debit depreciation expense on the P&L and the offset would be accumulated depreciation that reduces the net investment in rental asset on the balance sheet.
Option 1a: Reclassify the lease when evergreen period begins and depreciate the investment in operating lease
a) When lessee rolls over into evergreen, classify the lease as an operating lease.
b) Reclass the residual to a net investment in rental asset account.
c) Depreciate the residual over a predetermined amount of time using straight line methodology. (Depreciable life TBD)
d) Each month we would record debit depreciation expense on the P&L and the offset would be accumulated depreciation that reduces the net investment in rental asset on the balance sheet.
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