Finance Lease Payable
Finance lease payable refers to the amounts a company owes under a finance lease agreement. A finance lease is a type of long-term lease where the ownership of the leased asset typically transfers to the lessee at the end of the lease term. Finance lease payables include the principal portion of future lease payments and any unpaid interest.
Definition: Payable finance lease payments refer to the amounts that a company has yet to pay under a finance lease agreement. A finance lease is a form of long-term lease where the ownership of the leased asset typically transfers to the lessee at the end of the lease term. Payable finance lease payments include the principal portion of future lease payments and the unpaid interest portion.
Origin: The concept of finance leasing originated in the United States in the 1950s, initially to help companies acquire equipment and assets without having to pay the full purchase price upfront. Over time, this form of leasing has become widespread globally and has become an important means of corporate financing.
Categories and Characteristics: Payable finance lease payments can be divided into short-term and long-term categories. Short-term payable finance lease payments typically refer to amounts due within one year, while long-term payable finance lease payments refer to amounts due beyond one year. Characteristics include: 1. Fixed lease payment schedules, facilitating corporate budget management; 2. Transfer of asset ownership at the end of the lease term, reducing long-term asset acquisition costs for the company; 3. Lease payments include interest, making the actual cost potentially higher than direct purchase.
Specific Cases: Case 1: A manufacturing company acquires a production machine worth 1 million yuan through a finance lease, with a lease term of 5 years and an annual payment of 200,000 yuan. Payable finance lease payments include the total lease payments of 1 million yuan over 5 years, with the principal portion being the machine's value of 1 million yuan and the interest portion being the total lease payments minus the machine's value. Case 2: A logistics company acquires a fleet of trucks worth 5 million yuan through a finance lease, with a lease term of 3 years and an annual payment of 1.8 million yuan. Payable finance lease payments include the total lease payments of 5.4 million yuan over 3 years, with the principal portion being the trucks' value of 5 million yuan and the interest portion being the total lease payments minus the trucks' value.
Common Questions: 1. Will payable finance lease payments affect a company's debt ratio? Yes, payable finance lease payments are accounted for as liabilities, thus affecting the debt ratio. 2. How is the interest portion of payable finance lease payments calculated? The interest portion is typically calculated by subtracting the principal value of the leased asset from the total lease payments.
