CA Intermediate · Advanced Accounting · AS 19 Leases

Lessor Anand Finance Ltd. leases equipment to Bhavani Textiles Ltd. under a finance lease for 3 years. Annual rentals of ₹4,00,000 are payable at the end of each year. The lessee guarantees a residual value of ₹1,00,000 at the end of the lease, and the lessor estimates a further unguaranteed residual value of ₹50,000. What is the lessor's gross investment in the lease as defined in AS 19?

The gross investment is ₹13,50,000. It is the sum of the minimum lease payments (₹12,00,000 of rentals plus ₹1,00,000 guaranteed residual) and the ₹50,000 unguaranteed residual value, as AS 19 defines gross investment for the lessor.

A₹12,00,000
B₹12,50,000
C₹13,00,000
D₹13,50,000Correct

Explanation

Gross investment equals the aggregate of minimum lease payments from the lessor's viewpoint plus any unguaranteed residual value. Minimum lease payments are 3 × 4,00,000 = ₹12,00,000 plus the guaranteed residual of ₹1,00,000 = ₹13,00,000. Adding the unguaranteed residual of ₹50,000 gives ₹13,50,000. The figure of ₹13,00,000 is wrong because it omits the unguaranteed residual value.

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