Methodology for calculating lease payments

The word "leasing" has English roots. In translation, the term means "to lease." Leasing is a type of financial services, a specific form of lending for the acquisition of fixed assets by enterprises or expensive goods by individuals.

The essence of the transaction

According to the agreement, the lessor accepts the obligation to acquire property defined by the lessee. The seller is determined by the recipient. The acquired property is transferred to him for a fee for use and temporary possession.

As a rule, such a procedure is carried out as part of entrepreneurial activity. From Jan 1 2011 leasing may be consumer.

The contract may stipulate that the lessor selects the seller and property. In this case, the lessee may be the owner of the values.

Nuances

In the laws of different countries, the tax consequences of leasing are considered in different ways. In the Russian Federation, for example, such a lease allows you to calculate depreciation using the accelerated method. The law also provides for the redistribution of terms for VAT deductions.

At its core, leasing is a long-term lease with subsequent redemption of property. The UNIDROIT Convention, ratified by the Russian Federation, does not provide for the compulsory right of redemption, only rental is allowed.

Subject of the contract

They are any non-consumable objects. Among them, for example, structures, buildings, equipment, vehicles, other property.

Land plots, objects that are prohibited or restricted in circulation cannot be the subject of such a lease.

The leased asset provided to the recipient for temporary use and possession is considered the property of the lessor. Objects transferred under the agreement are recorded on the balance sheet of one of the participants in the transaction by their agreement.

The subject of leasing refers to a specific profile group. Belonging to one or another category determines the risk of the transaction.

Classification

Types of leasing vary depending on the useful life of the facility and the economic content of the contract. Rent may be:

• Financial. The term of the contract is similar to the period of useful use. Usually, at the end of the agreement, the residual value of the item approaches zero. In this case, the object may become the property of the recipient at no additional charge. Financial rent is considered one of the ways to attract targeted funds.
• Operational. The validity period of the contract is significantly less than the useful life. As a rule, the subject of the agreement is the assets already held by the tenant. In this case, the transaction may not include the seller (third party). After the expiration of the contract, the object is either returned to the lessor and can be re-leased, or it is bought out by the lessee at the residual market price. The latter option is considered more an exception to the rule. The lease rate for operational leasing may be higher than for financial.

Separate leaseback consideration. Its essence is that the seller of property is at the same time a lessee. Returnable leasing can be considered as obtaining credit funds secured by production assets and deriving additional economic benefits from the difference in taxation.

Payment schedules

The main options are:

• Regressive. This schedule provides that the monthly amount is reduced over the lease term.
• Annuity. In this case, the amount remains unchanged.
• Seasonal. In this case, the schedule is tied to the seasonality of the lessee.

Financial leasing is regulated by Articles 665 and 666 of the Civil Code, the provisions of the Federal Law No. 164 and other regulatory acts.

Material terms of the transaction

The contract should contain clauses on:

1. Subject of the transaction.
2. The seller of the property and that his choice is made by the lessee.
3. Deadline.
4. Cost (amount of payments).

In the absence of these conditions, the contract is recognized as non-concluded.

Lease payments

They are the amounts deducted to the lessor for the right granted by the lessee to use the property that is the subject of the contract.

When calculating the amounts of lease payments are taken into account:

• Depreciation of an object for the entire period of the agreement.
• Compensation of the lessor's payment for the loan funds used by him.
• Amounts transferred for the provision of additional services by the lessor established in the contract.
• Commission remuneration.
• The cost of the purchased property, if the agreement provides for the appropriate procedure and procedure for paying this price in installments as part of leasing payments.

When concluding the contract, the participants in the transaction determine the total amount of deductions, the method and form of payment, the frequency of payment and the method of payment.

Payments can be in cash, compensation or mixed form. The cost of services or products in the second method is determined on the basis of the provisions of the law.

Methods for calculating lease payments

When concluding an agreement, the parties may choose the following accrual options:

1. With a fixed total amount. This method of calculating lease payments involves the distribution of equal parts of the amount for the agreed periods during the term of the agreement.
2. In advance. In this case, the lessee pays the lessor a preliminary amount. Its size is set by the parties. The rest is charged and paid during the term of the agreement in the manner similar to the calculation of lease payments with a fixed amount.
3. Minimum deductions. In this case, the total amount includes the depreciation of property for the entire period of the contract, payment for the use of borrowed funds, commission fees, as well as payment for additional services agreed upon by the parties to the contract and the cost of the purchased property (if established by the parties to the transaction).

Let us further consider how the calculation of leasing payments is carried out with examples of settlements .

General calculation rules

Reducing the lessor's debt leads to a decrease in payment for the use of borrowed funds. In addition, the amount of the commission fee is reduced if its rate is set as a percentage of the unpaid value of the object leased. Calculation of lease payments in this regard, it is advisable to make the following scheme:

1. Amounts are calculated for the years covered by the contract.
2. The total amount of payments for the entire duration of the agreement is determined. For this, the amounts determined by year are added up.
3. The amount of contributions is calculated based on the frequency chosen by the parties, the methodology for calculating leasing payments and the method of making them.

In case of an operational lease, if the term of the agreement is less than a year, the amount of deductions is determined by months. A detailed description of the algorithm is given in the Guidelines for the calculation of leasing payments .

Accrual scheme

In practice, the following formula for calculating lease payments is used :

OP = PC + AO + + + VAT, in which:

• OP - the total amount of payments.
• PC - fee for using borrowed funds.
• AO - depreciation.
• DU - payment extra. services.
• KV - reward for providing the object.
• VAT - tax on ext. cost.

Please note that if the lessee is a small business, VAT is not included in the calculation of the total amount of lease payments .

Depreciation deductions

To determine them, use the formula:

AO = BS x Na / 100, in which:

• On - depreciation rate.
• BS - book value.

When calculating lease payments, the book value is determined by the accounting rules.

The participants in the transaction have the right to apply the method of accelerated depreciation with a coefficient of not more than 2 units.

Credit Facility Fee

To determine the amount of payment for the use of a loan to purchase a leasing object, the following equation is applied when calculating leasing payments :

PC = St x KR / 100, in which:

• KR - loan amount.
• St - loan rate.

At the same time, it is understood that during each billing year, the PC indicator is related to the average annual amount of the outstanding loan in the current period or to the average annual residual price of the object:

KRtec = K x (OSnach + OSkon) / 2, where:

• KRtek - loan funds used to purchase an object, payment for the use of which is made in the current period.
• OSnach and OSkon - estimated residual price of property at the beginning and end of the period, respectively.
• K - coefficient taking into account the share of the loan in the total value of the object. If only credit funds are used in the acquisition of property, the coefficient is taken to be equal to one.

Commission remuneration

When calculating payments under a leasing agreement, remuneration may be determined as a percentage of:

• the average annual residual price of the object;
• book value of the subject of the transaction.

Depending on this, the corresponding equation will be used. When calculating lease payments, remuneration can be determined as follows:

KV = BS x p, where:

• BS - book value;
• p - interest rate.

You can also use the following equation:

KV = Sv / 100 x (OSnach + OSkon) / 2, in which:

• St - interest rate.
• OSnach and OSkon - residual price of the object at the beginning and end of the period.

Additional services

When calculating lease payments, payment of additional. Lessor's services this year are as follows:

= ( + ... Pn) / , where:

• R ... Pn - lessor costs for services (each separately), agreed by the parties to the transaction.
• T is the validity period of the agreement.

VAT calculation

If the general procedure for calculating lease payments is used , the tax is determined as follows:

VATtec = Vtek x ST / 100, where:

• VATtec - the size of the deduction in the current year.
• Vtek - the value of the transaction revenue in the billing period.
• ST - tax rate.

Revenue is determined by the following formula:

WTek = KWek + PCTek + AOTek + DUTek.

It should be noted that the composition of the elements that form revenue is determined by the Tax Code and the rules for determining the tax base.

Calculation of amounts for deductions in equal shares

If the parties have provided for an annual payment, the calculation of lease payments is made as follows:

LPg = OD / T, where:

• LPG - contribution per year.
• OP - the total amount of payments.
• T is the term of the agreement.

If the parties have established quarterly payments, the formula is used to perform the calculation:

• LPK = OD / T / 4.

The calculation of the amount of lease payments per month is as follows:

• LPm = OD / T / 12.

Effective bid

It represents the real price of a leasing project. The effective rate is formed from the costs that the lessee must incur. Consider an example. Initial data:

• A citizen decided to purchase an expensive car for 2.8 million rubles.
• In the hands of the buyer only 280 thousand rubles, which is 10% of the advance payment.
• The contract is drawn up for 10 years.
• Every month you need to make 100,000 rubles.
• The rate of appreciation is 9.52%.
• The total amount of payment is 3.6 million rubles.
• Redemption is carried out in an annuity manner.

After the first installment is paid, the appreciation rate is applied to the remaining amount: 2.8 million - 280 thousand = 2.52 million. This amount is a real loan taken from a leasing company.

It is better to perform the calculation of leasing payments in Excel. You can use the following calculation model:

Effective rate (rental months; -the amount of payment per month (the "-" sign must be put before the indicator without fail); the total amount of debt).

The following values ​​are entered in the formula fields:

• Effective rate (36; -100,000; 2,520,000).

As a result, we get 2.07% per month. and 24.85% per year.

Accrual of amount under an operating lease agreement

The initial data are as follows:

• The price of the object is 72 million rubles.
• The contract period is 2 g.
• Depreciation rate - 10% / year
• The loan rate is 50% / year.
• Commission fee - 12% / year.
• The amount of payment for additional services is 4 million rubles. (including: consulting services for the operation of the facility 1.5 million rubles, travel expenses - 500 thousand rubles, employee training - 2 million rubles).
• Amounts are paid in equal shares on the first day of the first month of each quarter.
• VAT - 20%.

Define the total amount by year (in million rubles).

1 year:

• PC = 50 x 68.4 / 100 = 34.2.
• AO = 10 x 72.0 / 100 = 7.2.
• RV = 12 x 68.4 / 100 = 8.208.
• B = 2.0 + 34.2 + 7.2 + 8.208 = 51.608.
• DN = 4/2 = 2.
• VAT = 20 x 51.608 / 100 = 10.3216.
• OD = 2.0 + 7.2 + 10.3216 + 34.2 + 8.208 = 61.9296.

2 year:

• KB = 12 x 61.2 / 100 = 7.344.
• PC = 50 x 61.2 / 100 = 30.6.
• AO = 10 x 72.0 / 100 = 7.2.
• DN = 4/2 = 2.
• B = 2.0 + 7.2 + 30.6 + 7.344 = 47.144.
• VAT = 20 x 47.144 / 100 = 9.4288.
• OD = 9.4288 + 7.344 + 7.2 + 30.6 + 2.0 = 56.6328.

Total value:

• 56.6328 + 61.9296 = 118.5624.

Amount of contributions - 14.8203:

• 118.5624 / 2/4.

Determination of amounts under a finance lease agreement with full amortization

Initial data:

• The price of the object is 160 million rubles.
• The agreement is drawn up for 10 liters.
• The depreciation rate is 10% per annum.
• The loan rate is 40% per year.
• Commission fee - 10% per annum.
• Credit funds - 160 million rubles.
• Additional services - 9.6 million rubles.
• Contributions are deducted annually from the first year in equal installments.
• VAT - 20%.

Define the total amount in million rubles.

1 year:

• AO = 10 x 160/100 = 16.
• DN = 9.6 / 10 = 0.96.
• PC = 40 x 152/100 = 60.8.
• KB = 10 x 152/100 = 15.2.
• B = 15.2 + 0.96 + 16 + 60.8 = 92.96.
• VAT = 20 x 92.96 / 100 = 18.592.
• OD = 16 + 18.592 + 60.8 + 0.96 + 15.2 = 111.552.

2 year:

• DN = 9.6 / 10 = 0.96.
• AO = 10 x 160/100 = 16.0.
• KB = 10 x 136/100 = 13.6.
• PC = 40 x 136/100 = 54.4.
• B = 13.6 + 0.96 + 16 + 54.4 = 84.96.
• VAT = 20 x 84.96 / 100 = 16.992.
• LP = 54.4 + 16.992 + 16 + 0.96 + 13.6 = 101.952.

Similarly, calculations are carried out for 3-10 years. As a result, the amount of contributions (in million rubles) will amount to 68.352 (683.52 / 10).

Economic feasibility of the transaction

The purchase of fixed assets under a leasing agreement allows the company to reduce the tax burden. Thus, payments reduce the income tax base, since they are recognized as expenses. Accelerated depreciation using coefficient 3 makes it possible to reduce the base for deductions from property and further reduce it for income tax.

With proper planning of VAT flows under the leasing agreement, in some cases it allows you to get additional benefits.

Separately, it is worth considering a leaseback, in which the lessee is also the seller of the object. An enterprise, in other words, leases property that originally belonged to it. When returning the lease, 2 agreements are concluded: 1 - on the purchase and sale, 2 - on the transfer of the object on lease.

This procedure does not provide for changes in the manufacturing process. Returnable leasing is used to cover the deficit of working capital of an enterprise receiving both money and for “sold” property. Experts compare such a deal with a secured loan. But with leaseback, the costs of the contract are lower than at the bank.

Additionally

In domestic practice, it is customary to determine the cost rate in the contract. As a rule, it is considered as annual%. The rate is calculated as the difference between the total amount of payments and the value of the object, reduced to the annual rate, taking into account the duration of the contract.

The effectiveness of leasing operations can be assessed by analyzing the structure of payments and economic results. For this, the payment is decomposed into the components:

LP = basic debt + (% on loan + property tax + additional costs) x 1.18 (VAT).

The real value of the enterprise’s resources is reduced by the savings arising from the use of the leasing scheme. It should be borne in mind that at the end of the lease, the company does not deduct property tax, since the asset is transferred at zero cost.

In addition, when buying an OS using its own or credit funds, the company credits VAT on the price of the sale agreement. When leasing, the tax is charged on the total amount of payments.

As calculations show, the leasing model for acquiring property is much more profitable than lending in the usual manner through a banking structure. However, it should be borne in mind that its use is limited to the amount of the transaction. The higher it is, the greater the economic benefit.