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Transportation company (Taxi Service): could you help on accounting model?

A transportation company providing taxi service acquires a car by finance lease and gives to driver for 6 years for a daily fee. After 6 years the driver becomes a legal owner. Is it to be accounted as a finance lease? Is any paragraph in IFRS focused on this topic?

asked Feb 16, 2015 in IAS 17 - Leases by anonymous

1 Answer

+1 vote
Best answer
IAS 17 applies in such situation:
The 1st contract is between the Bank (lessor) and the Transportation Company (Lessee)
the lessee buys an asset from the lessor and recognizes a loan (finance lease) and capitalize an asset. because it is a finance lease ownership will only transfer to the Transportation company once the last instalment is paid.

The 2nd contract is between the Transportation Company (Lessor) and the Taxi Drivers (Lessee) this contract would be regarded also as a finance lease since the terms states that ownership to be transferred to drivers at the lapse of a certain period. this will only happen if the first contract's terms are satisfied.

Remember that when recognizing a finance lease transaction you use substance over form instead of legal purchase.
answered Feb 17, 2015 by Fusion01 Level 3 Member (5,690 points)
selected Feb 17, 2015 by Mysio