Accounting System

Capital lease agreements that are depreciated as leased assets

2016/08/27

リース資産として減価償却されるキャピタルリース契約

Leases managed by a fixed asset management system

To take a familiar example of receiving services on someone else's money・・・・

  • Bali car rental company rents out Avanza with a driver to an unspecified number of travellers
  • If you pay for books on Amazon with your VISA card, the credit will be paid in advance by VISA.
  • A Japanese company in Jakarta signed a lease agreement with a leasing company to purchase a new Inova and pay for the lease under a three-year contract.
  • Mortgage loan for 15 years in installments financed with KPR (Kredit Pemilikan Rumah) of BCA

The Avanza rented as a rental car is the property of the car rental company, the books bought on credit are the property of the consumer, the new Inova with lease agreement is the property of the Japanese company (BPKB=Buku Pemilik Kendaraan Bermotor vehicle registration certificate is kept by the leasing company), and the My Home purchased with KPR is the property of the consumer.

A fixed asset management system has three functions

  1. fixed asset management
  2. Construction Management
  3. lease management

If the new Inova is leased as a company vehicle, it is an operational lease if it is expensed, but if it is a repayment of the leased asset which is a fixed asset, it is a capital lease (from the leasing company's point of view, it is a finance lease), of which it is managed by the lease management function of the fixed asset system, which is a capital lease.

Leaseback to transfer assets and reduce the maintenance burden.

A leaseback is the sale of a business asset and the use of the asset as-is while paying royalties to the purchaser, and the main purpose is to cash in on the sale, but the maintenance obligations of the asset can be transferred by transferring ownership of the asset.

For example, Indosat, a state-owned telecommunications company, has built radio towers on every island in Indonesia, and by building the towers and selling them to a company specializing in maintenance management and leasing them, it has the advantage of outsourcing the maintenance work and focusing on its core business.

Tax savings and cash-out control through capital leases

In an operational lease, you rent the assets of the leasing company for a lease payment, which has the effect of limiting large cash outflows by expensing the assets, but in effect is the same as a rental car.

On the other hand, in the case of capital lease (sale and leaseback), it is possible to reduce the lease liability over a long period of time by transferring the company's assets to the leased assets without selling them, which is different from the liability to be settled in a short period of time (A/P). Therefore, it is possible to avoid incurring value-added tax (PPn-out) by selling them to the leasing company and to control the large expenditure at the time of purchase of machinery.

However, there is no value-added tax (PPn-in) because it is not a purchase (sale from the leasing company).

For example, let's say that a machine with a depreciation period of 10 years, Rp.1,000,000, is leased for 3 years. Rp.100,000 for the 10% PPn-in at the time of purchase is not included in the lease amount.

(At the time of the lease agreement)

  • purchase of a machine
    PPn-in 10% is not included in the lease amount.
    (Dr) Plant & Machinery 1,000,000    (Cr) Lease A/P 1,000,000
    (Dr) PPn-in 100,000           (Cr)A/P 100,000
  • The amount of the lease agreement
    It's not a sale, so there's no PPn-out 10%.
    (Dr) Lease asset 1,000,000    (Cr) Plant & Machinery 1,000,000

(Monthly payments.)
The lease amount of the machine is Rp.1,000,000, but the purchase amount is lower than the actual amount, and the difference can be divided at the time of lease payment as interest expense.

  • Lease payments(1,000,000÷3÷12)
    (Dr)Lease A/P 27,777        (Cr)Bank 27,777
  • Depreciation(1,000,000÷10÷12)
    (Dr) Depreciation 8,333         (Cr)Accumulated depreciation 8,333

(After the end of the lease agreement)

  • Conversion of leased assets to fixed assets
    Since it's not a purchase, no PPn-in 10% will be generated.
    (Dr)Plant & Machinery 1,000,000        (Cr)Lease asset 1,000,000

(Monthly payments.)

  • Depreciation
    (Dr)Depreciation 8,333        (Cr)Accumulated depreciation 8,333