According to a particular agreement can be booked on either the lessor's or the lessee's balance.
In either case the accountant has to act in compliance with the current legislature on accounting. Detailed instructions on showing leasing deals in a company's accounts are given among others in the RF Ministry of Finance order #15 dated 17 February 1997 "On showing leasing deals in a company's accounts". However, when applying this order one should take into consideration that it was issued before the transition to the new Plan of Accounts. Therefore the entries decribed therein should be adjusted considering the requirements , of the new Plan of financial and economic activities accounting and the Instruction on its use approved by the Ministry of Finance order #94 dated 31 October 2000.
If the property is on the lessor's balance.
If within the term of the agreement the property is booked on the lessor's balance, the lessor's leasing transactions are reflected in the accounts according to the same principles as ordinary rental transactions.
Property acquired as part of a leasing agreement, booked on the lessor's balance and actually used by a medial organization is to be recorded off-balance. Account 001 "Leased fixed assets" is used for this purpose.
Settlements with the lessor are reflected in account 76 "Miscellaneous debtors' and lenders' settlements", with a sub-account "Leasing payment liabilities" being opened.
The amount of leasing payments are recorded as expenditure, i.e. the debit of account 20 Primary Production, 23 Supplementary Production, 25 General Production costs, 26 General administrative costs or 44 selling expenses depending which division uses the leased equipment. The total amount of the incoming leasing payments is included into the company's accounting as well as tax accounting expenses (RF Tax Code clause 246 article 10.10).
If the equipment becomes the lessee's property after the leasing agreement expires, these transactions are reflected according to the general principles for fixed assets acquisition accounting. Here the property is removed from the off-balance account 001, the redemption value of the equipment is included in account 08 "Investment in non-current assets", then it is entered in account 01 "Fixed assets", after that it is depreciated throughout its remaining performance life.
Should there be no redemption value, i.e. it was included in the leasing payments and therefore has been entered as expenses, the equipment can be entered as Debit 01 Credit 02.
If the leasing agreement stipulates that the equipment shall be returned to the lessor upon the expiration, the lessee's accountant should reflect this transaction simply by writing the property off the off-balance account 001 "Leased fixed assets".
If the property is on the lessee's balance.
If the leasing agreement stipulates that the subject of the agreement - the equipment is on the lessee's balance, the lessee's accountant should enter it according to the principles envisaged for fixed assets acquisition transactions.
In this case the value of the equipment is entered in the debit of account08 "Investment in non-current assets", where it is reasonable to open a sub-account"Fixed assets acquisition on a leasing greement". The same amount will be credited to account76 "Miscellaneous Debtors' and Lenders' settlement" , with a sub-account"Rental obligations" being opened.
The debit of account08 will also include all the expenses arising from the equipment acquisition, delivery, and installation, after which he property will be put in operation by the following entry:
Debit 01 "Fixed assets" sub-account"Leased property" (or "Fixed assets obtained under a leasing agreement")
Credit 08 "Investment in non-current assets"
Beginning the month following putting the equipment in operation it will be depreciated according to the Accounting Principles 6/01 "Fixed Assets Accounting", which will be reflected in the debit of cost accounting records (20 èëè 26) and the credit of account02 sub-account"Leased property depreciation". Depreciation charges are paid by the party of the agreement that has the leased property on its balance (FL 164 cl. 31.2).
Depreciation is accrued both in the company's accounting and tax accounting (RF Tax Code cl. 259). It should be taken into account that according to the RF Tax Code cl. 264, art. 10.1 the tax accounting includes leasing payments in other expenses related to production and sales less the amount accrued on the depreciated property in question in accordance with the RF Tax Code cl. 259. Moreover, according to FL 164 cl. 31 accelerated depreciation of the leased property is possible upon mutual consent of the parties involved. In particular, the RF tax Code cl. 259 art. 7 allows applying a special quotient not exceeding 3 to the basic depreciation norm (excluding fixed assets that are part of depreciation groups 1, 2 and 3 if they are depreciated using a non-linear method.
The accountant should reflect regular leasing payments by transferring part of the debt to the lessor from the debit of account76, sub-account"rental obligations" to the credit of account76 "leasing payment liabilities". As a result the credit balance of the sub-account"rental obligations" will reflect the balance of the outstanding debt to the lessor for future months leasing payments whereas the sub-account"leasing payment liabilities" will reflect the current leasing payments (or the current month leasing payment liabilities).
Thus the following entries should be made:
Acc. 08 D acc. 76 C (rental obligations) - reflects the total amount less VAT owed by the lessee to the lessor due under a leasing payment agreement
Acc. 17 D acc. 76 C- reflects VAT submitted by the lessor
Acc. 01 acc. 08 C - leased fixed asset put in operation.
Monthly:
Acc. 76 D acc. 76 C- leasing payments liabilities accrued
Acc. 76 D acc. 51 C - leasing payment transferred to the lessor
Acc. 68 D acc. 19 C - VAT paid as part of the leasing payment deducted
If the lessee becomes the owner of the leased property upon the expiration of the leasing agreement, then the accountant should transfer the relevant amounts shown in accounts 01 and 02 by an internal record from the sub-account intended for rented property accounting to the sub-accounts intended for owned fixed assets.
If the leased property is to be returned to the lessor upon the expiration of the leasing agreement it is written off the lessee's balance following the usual procedure for fixed assets disposal, i.e.
The acquisition cost of the equipment is written off the credit of account 01, sub-account "Rented property" (or Fixed assets under a leasing agreement) to the debit of account 01, sub-account "Fixed assets disposal"
the property depreciation amount is written off the debit of account 02, sub-account "Leased fixed assets depreciation" to the credit of account 01 "Fixed assets disposal";
the residual value of the equipment (if relevant) is written off the credit of account 01, sub-account Fixed assets disposal" to the debit of account 91 "Other revenues and expenses".