INITIAL
DIRECT COSTS OF DIRECT FINANCING LEASES
(A summary of FAS 91-- as it relates to initial direct costs)
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Initial direct costs should be debited
to the gross investment in the lease (lease payments receivable) FAS 91,¶
25
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The net investment in the lease should include
the unamortized portion of the initial direct costs FAS 91, ¶
25 d, c
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The effective interest rate should be applied
to the net investment at the beginning of the year to determine the amount
of interest income to recognize.
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The implicit rate of interest should be applied
to the net investment excluding the initial direct costs to determine the
amount of unearned interest income to amortize.
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The difference between (3) and (4) above will
be the amount of initial direct costs to amortize each period.
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