FRA

canipungoel
Good Student
Posts: 27
Joined: Mon Feb 23, 2015 3:38 am

FRA

Postby canipungoel » Wed Mar 25, 2015 12:20 pm

Q-1 What is the meaning of Synthetic lease?
Q-2 What is the meaning of Bargain purchase option?
Q-3 What is the meaning of Channel Shifting?

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

FRA

Postby edupristine » Thu Mar 26, 2015 9:08 am

Hi, answer to your queries are as follows:

Sol 1: Synthetic lease is an off balance sheet financing which is not recorded as a liability on the balance sheet. In this the lessor (bank or financial institution) purchases an asset from a vendor and leases it to a person, entity or lessee. Lessee is required to pay lessor periodically during the lease term. At the end of the lease term, lessee has the option to purchase the asset at a predetermined price from lessor. Or lessor may sell the asset to a third party. Hence, company is able to control asset without being required to show it as an asset on the financial statements.

Sol 2: When lessee has the option to purchase leased asset at the end of the lease term at a price which is below the fair market value it is called bargain purchase option. If the lessee decides to take this option asset will be classified as capital lease and represented on the lessee’s balance sheet. This will prevent off balance sheet financing. Example: Value of asset at the end of lease term is $200,000 and lessee is eligible to purchase at $80,000. We will say the lessee has opted for the bargain purchase option and would require lessee to disclose the asset on the balance sheet as a capital lease.

Also, could you please tell me the source of the query "Channel Shifting?"

canipungoel
Good Student
Posts: 27
Joined: Mon Feb 23, 2015 3:38 am

FRA

Postby canipungoel » Sun Mar 29, 2015 2:26 am

The source of Channel shifting is warning signs for detecting manipulation of information in financial reporting. Please help me to understand this warning sign.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

FRA

Postby edupristine » Mon Mar 30, 2015 7:40 am

In Channel stuffing process companies temporarily boosts their account receivables. For example:- Providing more discount to the stores following by an easy credit norms.


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