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CA Intermediate · Advanced Accounting · AS 19 Leases

Sundaram Leasing Ltd. has given a printing machine to Kaveri Print House on a finance lease. At the inception of the lease, the lessor's gross investment in the lease is ₹6,00,000 and the unearned finance income is ₹80,000. What is the lessor's net investment in the lease to be recognised as a receivable?

The net investment is ₹5,20,000. For a finance lease, the lessor shows a receivable equal to gross investment less unearned finance income, so 6,00,000 minus 80,000 gives 5,20,000. The unearned income is later recognised over the lease term as finance income.

  1. A₹5,20,000Correct
  2. B₹6,80,000
  3. C₹6,00,000
  4. D₹4,40,000

Explanation

Under AS 19, net investment = gross investment less unearned finance income = 6,00,000 − 80,000 = ₹5,20,000. Check: 5,20,000 + 80,000 = 6,00,000. The figure of ₹4,40,000 comes from deducting the unearned finance income twice, which is wrong.

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