What is a Direct Lease?

Direct leasing refers to the lease where the lessor purchases the equipment with its own funds or funds raised in the capital market and leases it directly to the lessee, that is, "purchase in and out".

Direct lease

Right!

Chinese name: Direct lease
Foreign name: Direct leasing

Meaning: "Buy in and rent out"
Extended meaning: Direct finance lease
Financial lease conditions: Must have the characteristics of a financial lease, etc.

Extended meaning

Direct financing lease ( direct financing lease)

Direct financial leasing refers to a method in which a leasing company uses its own funds, bank loans or IPOs to raise funds in international or domestic financial markets, purchase equipment required by users from equipment manufacturers, and lease it to leased companies Main financing leases. This direct leasing method is that the parties to the lease meet directly, and the requirements and conditions of the three parties are very specific and clear. The direct leasing method has no time interval, the lessor has no equipment inventory, the capital flow is accelerated, and the investment efficiency is high.

Analysis of direct financial leasing business

Use of funds raised in the capital market by the lessor to the manufacturer

Pay the purchase price and lease it directly to the user (lessee) after purchasing the equipment. The lease of this lease typically includes two contracts:

(1) The lessor signs a lease contract with the lessee;

(2) The lessor signs a sales contract with the manufacturer in accordance with the ordering requirements of the lessee.

In addition to the conditions of a direct financial lease, in addition to the characteristics of a financial lease, the direct financial lease must also meet the following two additional conditions:

(1) The rent (minimum lease payment) received by the lessor from the lessee is indeed guaranteed and can be reasonably estimated;

(2) There are no significant uncertainties affecting the cost compensation of the lessor. This uncertainty includes the lessor's commitment to the lessee to provide a wide range of services for the leased asset, or the exclusion of guarantees that the leased asset is outdated or obsolete. On the lease start date, the book value of the leased assets involved in this lease is equal to its fair value.

Most leasing companies in economically developed countries generally adopt the method of direct financial leasing. In China, large leasing companies with strong financial resources also adopt this approach.

Procedures for direct financial lease

Direct financial leasing is a self-contained type of trilateral transaction involving three parties-the lessor, the lessee and the supplier, and consisting of at least two or more contracts-the sale and purchase contract and the lease contract. It is divided into the following steps:

(1) In the future, the lessee (user) determines the technology and equipment to be entrusted to the group according to their own needs, and submits the following documents to the leasing agency to submit the lease entrustment: 1) project proposal and feasibility study report or design task; 2) The user has the business registration certificate and relevant accounting statements; 3) Fill in the lease entrustment, and affix the official seal of the applying unit and the approving unit according to the state's approval authority; 4) Perform the lease to the lessee issued by the guarantee unit recognized by the lease agency An irrevocable letter of guarantee given by the lease contract.

(2) The leasing agency reviews the above documents and provides the user with a preliminary estimate of the rent. After approval, confirmation and consent, the project is approved internally and the commission is formally accepted externally.

(3) Finalize the lease conditions with the user, formulate the rental budget plan, sign the lease contract, and confirm the guarantee with the seal of the economic guarantor.

(4) The leasing agency will conduct technical and commercial negotiations with the user and the supplier. After the terms are negotiated, the leasing agency will act as the buyer and the user as the lessee to sign a supply contract with the seller.

(5) The leasing agency fulfills the purchase contract and pays the payment. At the same time, the supplier delivers and the user checks and accepts.

(6) Notify the renting company that the lease contract is officially started. The renting company shall pay the rent on time according to the stipulations in the lease notice.

(7) When the lease term expires, the leased enterprise may make the following choices for the leased equipment: purchase, renew the lease, or return the leased equipment to the leasing institution at a nominal price.

Business procedures for direct financial leasing

The business process of direct financial leasing is as follows:

1. Select rental equipment and its manufacturer

The leasing enterprise shall determine the leased equipment to be introduced according to the project planning requirements. Then choose a manufacturer with good reputation and high product quality, and directly negotiate with the equipment specifications, model, performance, technical requirements, quantity, price, delivery date, quality assurance and after-sales service conditions. If the lessee lacks understanding of the market situation, the leasing company can also identify leasing equipment and manufacturers.

2. Apply for entrusted lease

The lessee first has to choose a leasing company. It is mainly to understand the leasing company's financing capacity, business scope, financing rate and other related conditions. After selecting the leasing company, the lessee submits an application for entrustment, fills in the "Lease Application Form" or "Lease Power of Attorney" and gives it to the leasing company, detailing the types, specifications, models, performance, prices, supply units, Scheduled delivery and lease terms, production arrangements, estimated economic benefits, sources of funds to pay rent, etc. After the leasing company approves the approval, it signs and seals the power of attorney, indicating that it officially accepts the power of attorney.

3. Organize technical negotiation and business negotiation, sign the order contract

With the participation of the leasing company, the lessee conducts technical negotiations with the equipment manufacturers, mainly including equipment modeling, quality assurance, spare parts delivery time, technical training, installation and commissioning, and technical services. At the same time, the leasing company conducts business negotiations with equipment manufacturers, mainly including the price of the equipment, the currency of valuation, the mode of transportation, and the mode of supply. Leasing company signs a technical service agreement with the equipment manufacturer, and the leasing company signs an order contract with the equipment manufacturer.

4. Sign a lease contract

A leasing contract is signed between the leasing company and the lessee. The main terms of the leasing contract include: leased items, ownership of leased items, lease term, rent and its changes, dispute arbitration, and rights and obligations of both parties. The signing of the lease contract indicates that the lessee has obtained the right to use the equipment, and the ownership of the equipment still belongs to the leasing company.

5. Financing and payment

The leasing company can use its own funds to purchase equipment, but if its funds are in short supply, it can borrow funds from financial institutions, or raise funds from the financial market to directly pay suppliers for equipment purchases and miscellaneous charges, etc .; The money is provided to the leasing unit for prepayment of the goods. After the receipt of the equipment, the invoice is received, and then the actual payment is settled, which is converted into equipment lease.

6. Delivery and after-sales service

According to the provisions of the purchase contract, the supplier shall deliver the equipment to the leasing company and transfer it to the lessee or directly to the lessee. The lessee issues the "Leasing Equipment Acceptance Checklist" to the leasing company as a written proof that the lessee has received the leased equipment. The supplier shall send engineering and technical personnel to the factory for installation and commissioning, which shall be checked and accepted by the leased enterprise.

7. Payment of rent and liquidation interest

The leasing company starts to calculate the lease start date based on the equipment receipt issued by the lessee. Due to some costs that cannot be determined in advance (such as bank fees, freight and transportation insurance fees, etc.), after the last payment is made, the leasing company adjusts the original estimated cost according to the actual costs and sends the lease conditions to the user Change book. The lessee shall pay the rent according to the notice of change of lease conditions. The leasing company then repays the borrowings and pays interest with its lease fee and other income according to the financing contract signed with the financial institution.

8. Assignment or renewal

After the lease term expires, the leasing company will transfer the ownership of the equipment to the lessee or collect a small amount of rent to continue the lease in accordance with the contract. If the ownership of the equipment is transferred, the leasing company must issue a "Leasing Equipment Ownership Transfer Certificate" to the lessee to prove that the ownership of the leased equipment has been owned by the lessee.

Accounting for direct finance leases

The lessor's accounting can use both the net method and the gross method. According to the net amount method, the lessor shall debit the lease receivable and estimated residual value account with the leased net investment and credit the fixed asset account on the lease start date. According to the gross method, the total lease investment should be used to debit the lease receivables and estimated residual value accounts, and credit the fixed assets and unrealized interest income accounts. In the future, unrealized interest income should be gradually converted to realized interest income. It can be seen that the lessor did not make profit or loss on the lease start date. The lessee shall debit the leased asset at the lease start date and credit the lease payable and unrecognized interest expenses at the lower of the present value of the minimum lease payment and its fair value. Unrecognized interest expenses shall be recognized in installments during the lease term. The lessee should also depreciate the leased assets in the future.

First, the basic process of accounting

(1) 1. After submitting the lease application, after the lessor accepts it, sign the financial lease contract, according to the sum of the equipment price, transportation costs, installation and commissioning costs, insurance costs, etc., and the present value of the lease payments payable (the order of discount rates is: Internal interest rate, contract interest rate, and bank loan interest rate for the same period) The lower one is recorded as the asset's book value, which is debited to the "Fixed AssetsFinancial Lease Fixed Assets" account, and the "unrecognized financing cost" is debited to the unpaid lease interest payable. According to the total rent payable in the schedule of the financial lease contract, credit the account of "long-term payables financial lease payable".

2. If the proportion of the leased assets to the total assets of the enterprise is 30%, the book value of the assets can be confirmed according to the total rent payable, and the account of "Fixed AssetsFinancial Leased Fixed Assets" can be debited.

(2) When the lease contract is signed, the lessee should normally pay the lessor 20-30% of the leased object as the lease security, debit the account of "other receivables", and credit the account of "bank deposits". The security deposit is used to pay the last installment or leases, debit the account of "long-term payables-finance lease payable", and credit the account of "other receivables".

(3) During the lease period, the lessee pays the rent on schedule, debits the account of long-term payables finance lease payables, and credits the account of bank deposits. The part of the rental interest included in the rent is recognized as the current expense, the "financial expense" account is debited, and the "unrecognized financing expense" account is credited.

(4) The lessee accrues depreciation in two cases:

1. At the end of the contract period, the ownership of the leased object will be transferred. The lessee will make depreciation based on the normal service life, debit the "manufacturing expenses", "administrative expenses, etc." subjects, and credit the "accumulated depreciation" subjects.

2. When the contract is signed, it cannot be reasonably determined that the ownership of the leased object is transferred at the end of the period. The lessee depreciates the lease based on the shorter lease period and the normal service life (the lease period of the new equipment is generally shorter than the normal service life), that is, calculated on the lease Withdraw depreciation, debit subjects such as "manufacturing expenses", "management expenses", and credit "accumulated depreciation" subjects.

(5) When the lease term expires, the lessee acquires the ownership of the leased object in two cases:

1. The lessee depreciates according to the normal useful life. The net book value of the asset and the actual value of the asset should be substantially the same. The lessee does not need to adjust the account, acquires the ownership at the nominal price, and debits the "long-term payables-payable finance lease" account. Credit the "Bank Deposit" account, confirm the nominal price as the current expense, debit the "Financial Expenses" account, and credit the "Unrecognized Financing Expenses" account; at the same time, convert the "Financial Lease Fixed Assets" to "Own Fixed Assets" Assets "detailed account.

(2) Based on the appraisal value of cleared assets, debit the account of "fixed assets" and credit the account of "capital reserve".

Second, examples

Example 1: The charterer intends to lease a new ship to the lessor, setting the ship's purchase cost to 80 million, the normal depreciation period of the ship to be 20 years, the lease period to be 3 years, and the annual lease rate to be 7%. A total of 26.667 million was recovered, and the ownership was transferred at the expiry date, with a handling fee of 100 yuan.

Borrow: Fixed assets-80 million fixed assets financed by lease

Unrecognized financing costs

Loan: Long-term payables-91.201 million payables in finance leases

Borrowings: long-term payables-payables to finance leases

Loan: bank deposits 32.267 million

Borrowings: long-term payables-30.4 million payable in finance leases

Loan: bank deposits of 30.4 million

Borrow: long-term payables-28,533,400 finance lease payments payable

Loan: bank deposits of 28.533 million

Borrowing: 3.733337 million financial expenses

Loan: Unrecognized financing expenses of 3.733337 million

4. Depreciation is calculated based on the normal service life (20 years), 4 million a year is included in the current cost and expenses, and the following accounting entries are made;

Borrowing: 4 million manufacturing expenses, operating expenses, management expenses

Loan: Accumulated depreciation of 4 million

5. When the lease term expires, the net book value of the asset and the actual value of the asset should be substantially the same. The lessee does not need to adjust the account, and acquires the ownership at the nominal price of the goods, as the following accounting entries;

Borrowings: long-term payables 10, 000 finance lease payments payable

Loan: bank deposit of 0.01 million

6. At the same time, turn the "Financial Leased Fixed Assets" into "Owned Fixed Assets" detailed accounts and make the following accounting entries;

Borrow: fixed assets ×× equipment 80 million

Loan: Fixed assets-80 million fixed assets financed by lease

Analysis opinion: When the lease contract is signed, the ownership transfer is clearly defined, and under the condition that depreciation is accrued based on the normal service life:

3. When the lease term expires, the book value of the fixed assets of the lessee is 80 million, the depreciation has been raised to 12 million, and the net book value is 68 million (on the balance sheet asset side).

Example 2: The charterer intends to lease a new ship to the lessor, set the ship's purchase cost to 80 million, the normal depreciation period of the ship to be 20 years, the lease period to be 3 years, and the annual lease rate to be 7%. A total of 26.667 million was recovered, (the transfer of ownership is not guaranteed at the expiry date of the contract, depreciation is accrued based on the lease term, and it is specified in the supplementary ownership agreement to transfer the property right at 100 yuan).

1. Signing a lease contract. The lessee will record the asset purchase cost and the present value of the lease payable (the discount rate is generally the contract interest rate). PV = (2666.67 + 560) / (1 + 7%) + (2666.67 +373.33) / (1 + 7%) ^ 2 + (2666.66 + 186.67) / (1 + 7%) ^ 3 = 80 million, make the following accounting entries;

Borrow: Fixed AssetsFinancial lease of 80 million fixed assets

Unrecognized financing costs

Loan: Long-term payables-91.201 million payables in finance leases

2. A. When paying the principal and interest of the lease in the first year, an equivalent lease invoice issued by the lessor is received, and the following accounting entries are made;

Borrowings: long-term payables-payables to finance leases

Loan: bank deposits 32.267 million

B. When the principal and interest of the lease are paid in the second year, an equivalent lease invoice issued by the lessor is received for the following accounting entries;

Borrowings: long-term payables-30.4 million payable in finance leases

Loan: bank deposits of 30.4 million

C. When the principal and interest of the lease are paid in the third year, an equivalent lease invoice issued by the lessor is received, and the following accounting entries are made;

Borrow: long-term payables-28,533,400 finance lease payments payable

Loan: bank deposits of 28.533 million

3. During the lease period, the unrecognized financing expenses (including the nominal price of goods) are apportioned using the straight-line method and recognized as the expenses of the current year as the following accounting entries;

Borrowing: 3.733337 million financial expenses

Loan: Unrecognized financing expenses of 3.733337 million

4. Depreciation is calculated according to the lease term (3 years), and 266.6667 million per year are included in the cost and expenses of the year, and the following accounting entries are made;

Borrowing: manufacturing expenses, operating expenses, management expenses

Loan: Accumulated depreciation of 26.667 million

5. When the lease term expires, the net book value of the asset is 0, and the ownership is acquired at 100 yuan, which is used as the following accounting entry;

Borrow: Non-operating expenses 0.01 million

Loan: bank deposit of 0.01 million

6. The lessee depreciates according to the lease term. The net book value of the asset (0) is very different from the actual value of the asset. The lessee can evaluate the value of the asset in the name of liquidation and verification of capital, and enter the value in the account. 60 million for the following accounting entries;

Borrow: Fixed assets-60 million equipment

Loan: 60 million capital reserve

Also make the following offset entries;

Borrow: 80 million accumulated depreciation

Loan: Fixed assets-80 million fixed assets financed by lease

Analysis opinion: When the lease contract is signed, the ownership transfer is not clear, and under the conditions that depreciation is accrued over the lease term:

1. When the lease contract was signed, the asset side of the lessee s assets and liabilities increased by 91.201 million (fixed assets increased by 80 million and unrecognized financing costs increased by 11.201 million); the debtor increased by 25.041 million (long-term payables payable finance lease payments increased by 9120.01 Million).

2. The lessee enters financial costs of 11.201 million during the 3-year lease period, and enters manufacturing costs through depreciation, which in turn costs 80 million.

3. At the end of the term, the lessee's book value of the fixed assets after assessment will increase to 60 million (on the balance sheet asset side) and the capital reserve will increase by 60 million (on the balance sheet liability side).

What is a Direct Lease?

Direct lease

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