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Calculating the optimal residual value on a lease as a Lessor...

Atul  Madahar's Profile

Dear Proformative Community: I consult for a small/mid-size bio/pharma lab equipment VAR and distributor. We market both wet and dry pharma equipment most which is a mix of commodity and some semi-custom lab/production equipment. The CEO and board are exploring the creation of lab equipment leasing service for our customers and effectively becoming an equipment lessor. Our lease amounts will probably be in the $100,000 to $1.5M range. The lease periods will be around 36 months (+/- 6 months, with further extension options for the leasee). Q: As the lessor, what is the normal and customary method to calculate the residual value of the equipment for monthly lease payments. Should we calculated the residual value for the lease payment based on an end of period depreciated value (straight-line, or accelerated) or should we consider a zero residual value? What is permitted by FASB/GAAP vs. IFRS for a Lessors? What is normal and customary for equipment leasing companies? Is it negotiable with the leasee? Your inputs are greatly appreciated. A


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