You are required to give the necessary journal entry at the inception of lease to record the asset taken on finance lease in books of lessee from…

Present value of minimum lease payment is computed below: Year MLP ₹ DF (12.6%) PV ₹ 1 50,000 0.890 44,500 2 50,000 0.790 39,500 3 50,000 0.700 35,000 4 50,000 0.622 31,100 5 50,000 0.552 27,600 5 25,000 0.552 13,800 1,91,500 Present value of minimum lease payment = 1,91,500 Fair value of leased asset = 2,00,000 As per AS 19, on the date of inception of Lease, Lessee should show it as an asset and corresponding liability at lower of Fair value of leased asset at the inception of the lease and present value of minimum lease payments from the standpoint of the lessee. The accounting entry at the inception of lease to record the asset taken on finance lease in books of lessee is suggested below: Dr. ₹ ₹ Asset A/c 1,91,500 To Lessor (Lease Liability) A/c 1,91,500 (Being recognition of finance lease as asset and liability)