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Accounting for Lease between two Companies

Accounting for lease between two companies

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We have two Companies which we account for - Company A and B.  Company B is 50% owned and a propertly management company - responsible for the management of two large office blocks which are owned by another party.

Anyway - Company B doesnt have the money currently to buy an asset which is needed for the car park (Barrier).

My thoughts were could company A buy the asset and lease the asset to Company B without it being treated as an asset for Company B?   ie like an Operating Lease as opposed to a finance lease. Company A would obviosuly have to stay as the owner of the property throughout its life and charge a lease to Company B??

Any thoughts on this appreciated. 

 

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By johnt27
18th Sep 2019 10:18

Simple answer - yes. If this is a significant asset you may wish to formalise the terms and consider wider tax implications, if any.

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By paul.benny
18th Sep 2019 10:33

(a) The arrangement you describe does not appear to qualify as an operating lease.
(b) Why do you not want an asset in the books of Company B
(c) Why the complication of a lease? Can B borrow - either from A, the other shareholder, or a third party lender.
(d) If B doesn't have the funds now, how is it going to service the lease/debt obligation?

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Replying to paul.benny:
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By WhichTyler
18th Sep 2019 12:42

Surely much easier to lend the money than to lend the asset. Maintenance, insurance etc will all be the responsibility of company B won't they?

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Hallerud at Easter
By DJKL
18th Sep 2019 12:23

Whilst Company B is responsible for management of the two office blocks (and presumably their car park) who does it get its funds from/how is it funded?

This may be an English property legal matter which I do not really follow, we have different tenures in Scotland,but when we have a management role re a building and it needs expensive works beyond the liquid resources we have on hand we charge those responsible in advance , in gather their monies, then instruct the work once in funds.

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