In our articles about leasing, we have already written about the classification of leases on the balance sheet and the economic life of leased assets according to balance sheet law. On a few examples we have shown how to interpret the regulations in this area in order to have the most reasonable estimation. This time we will take a look at discounting cash flow related to the lease agreement and the relation between that cash flow and the market value of the lease object.
Under the balance sheet law, if lease was concluded for a period of more than 75% of the economic life of the leased asset, it should be recorded in the balance sheet as finance lease. How can the entrepreneur check if the lease they concluded meets this requirement and thus must be recognised accordingly in the books?
Leasing is a unique form of business financing, where companies do not need to purchase the assets in order to use them. With the growing popularity of lease, many entrepreneurs are considering the pros and cons of this type of financing, also in the context of tax costs. What is very important yet often overlooked here is that your lease must be recognised on your balance sheet properly. What do you need to focus on?
