lease

Sheet3 Sheet2 Sheet1 Cost of the asset Salvage Value Nil SLM Depreciation Annual Lease Rent Interest Rate imlicit in lease Life of asset (years) lessee's borrowing rate Loan Amotization Schedule Year Interest Principal Balance Asset Amortization Schedule Depn. Asset Effect on Operating Income Operating Expenses Lease Capital Lease Operating Lease Lease Rent Effect on Net Income Depn. + Interest Total Expenses Under capital lease operating expenses ar lower hence higher operting profit Under capital lease total expenses are: 1) higher intially hence lower net income 2) lower in later year hence higher net income Effect on Balance Sheet Equity Incremental (Capital lease - Operating lease) Debt Under capital lease : 1) Equity is lower 2) Debt is higher 3) Assets are higher Effect on Operating Cash Flows Effect on Financing Cash flows Operating outflows Under capital lease operating outflows are lower hence higher operting CF Financing outflows Nothing Under capital lease Financing outflows are higher hence lower financing CF Manufacturing cost of the asset Annual Lease rent Life of the asset (years) From the Point of view of lessor Pv of lease rents @ 10% 2) show operating cash inflow of 248685 3) show investing cash outflow of 248685 1) book profit of 48685 4) Recognize lease asset of 248685 On the inception of lease, lessor will: Every year, lessor will: 1) Receive an amount of 100000, which will be broken up into interest and principal 2) interest component will increase net income and operating cash flow 3) principal component will reduce lease asset and increae investing cash flow. Sale type lease -000000.00 000000.00 0.00 0.00 0.00 00000.00 0.00 000000.00 0.00 00000.00 00000.00 000000.00 0.00 00000.00 000000.00 0.00 00000.00 00000.00 00000.00 0.00 00000.00 00000.00 0.00 0000.00 00000.00 0.00E-00 0.00 00000.00 0.00 0.00 00000.00 000000.00 0.00 000000.00 000000.00 0.00 00000.00 000000.00 0.00 000000.00 000000.00 0.00 00000.00 000000.00 0.00 00000.00 000000.00 0.00 0.00 000000.00 000000.00 0.00 -0000.00 000000.00 000000.00 0.00 -0000.00 00000.00 00000.00 0.00 -0.00E-00 0.00E-00 0.00 0.00 00000.00 000000.00 0.00 00000.00 0.00 0.00 00000.00 000000.00 0.00 00000.00 0.00 0.00 0000.00 000000.00 0.00 00000.00 0.00 000000.00 000000.00 0.00 000000.00