Realising Leased Assets

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Overview

Generally, if the net estimated realisable value of an leased asset exceeds the amount owing on the agreement, an appointee may agree with the Lessor to realise the leased assets and account to the Lessor for the sale proceeds, which includes payment to the Lessor for any liability under the agreement.

In the following section, you will realise both single and multiple assets.  The examples are those entered in the section Entering Leased Assets.

Realising a single leased asset

In this example, we will deal with a single asset which, after taking into account the monies outstanding to the Lessor, has a surplus.

1.    Open the asset register by clicking Financials > Assets.

2.    Double-click Assets subject to Lease/Chattel Mortgage, as shown below:

3.    Double-click the entry for the Audi A4:

The Lease/Chattel Mortgage Information screen is shown:

4.    Click the Payout/Return button to show the Charged Assets screen:

5.    As this asset has a surplus, we are going to 'retain' it.  Click the Retain checkbox and enter the amount of the finance remaining (in this case, £5,230):

Click OK.

6.    In the Confirm Payout screen, you may enter a VAT rate, which will be included in the amount paid to the Lessor (which may then be recovered at a later date through VAT 426/427).  In this case, we will use a zero VAT rate:

7.    Click OK, then click Exit to leave the Charged Assets screen, Save and Exit to leave the asset screen and Exit to leave the Asset Register screen.

 

8.    You should now be back at the Assets tab.  You will note that the Assets Subject to Lease/Chattel Mortgage has reduced and that there is an asset now available for realisation.  

Asset Screen 2.png

This asset can now be realised in the usual way.

9.    Recall that the vehicle has a realisable value of £8,800 and that £5,230 is due to the Lessor.

10.    In the Cash Sale screen, enter £8,800 for the amount the vehicle is being sold for:

Note that, in the Asset Register, the actual amount realised is correctly shown as £3,570.

11.    Now that the monies have been received, the Lessor can now be paid.  From the default bank account or the Transactions menu, select Make Supplier Payment:

12.    Select the Supplier drop-down: the Lessor should be shown in the list.  Selecting the Lessor will auto-complete most of the required fields:

13.    Enter the Amount to Pay to the Lessor:

Note that the payment amount is also updated.

14.    Complete the payment formalities - print cheque requisitions, remittance advices, etc - in the usual way.  Click Save and Exit to leave this screen.

Realising multiple leased assets

Here we will realise two assets where both have a surplus.

1.    Follow steps 1 to 3 in the preceding example, this time clicking the entry for Network Finance:

2.    In the Lease/Chattel Mortgage Information screen, select one vehicle and click Payout/Return as before.

3.    In the Charged Assets screen that is displayed next, both vehicles should be displayed:

4.    Both vehicles are to be retained, so select the checkboxes and enter the relevant sums as before:

5.    The process of realising the vehicles and settlement of the outstanding finance is the same as in the previous example.

Dealing with leased assets with no surplus

In this scenario, the vehicle has more finance outstanding than the vehicle is worth.  It is likely that the vehicle will be returned to the Lessor, so this needs to be reflected in the asset register.

1.    Open the Lease/Chattel Mortgage Information screen and select Payout/Return as before.

2.    As there is a deficit, select the Return checkbox:

3.    As there is no payment to be made to the Lessor, no other fields need to be completed.  Click Save.

4.    Assign a zero rate for the "payout", which is effectively the Lessor's unsecured claim.  Click OK then Exit to leave the screen.  Click Save and Exit to close the Lease/Chattel Mortgage Information screen.

5.    The Asset Register should now show the asset written off: 

6.    The Lessor's unsecured claim can be dealt with in the usual way.

Realising leased assets with set-off

In this example, there are two vehicles outstanding to the Lessor but only one appears to have a residual value.  For this example, we will assume the Lessor will have a right of set-off under their agreement.

We will therefore deal with both vehicles and account to the Lessor for the balance.

1.    For Santander, open the Lease Chattel Mortgage Information screen and select Payout/Return as before.

2.    Select Retain for the Jaguar, with a payout of £22,449.

3.    Select Return for the Volvo.

Return to the Asset Register as described in the preceding sections.

4.    The Jaguar can now be realised for £23,500.  You will see that, after this realisation, the value realised in the asset register is £1,051, which has taken account of the set-off.

5.    Make the payment to the Lessor as described in the preceding sections.

What if the amounts are different to those indicated in the Statement of Affairs?

In the above examples, it is assumed that the values of the vehicles and the amounts outstanding to the Lessors are unchanged from those shown in the Statement of Affairs.

In this example, we will use completely different values.  

The scenario is that the director of the company wishes to retain the Range Rover, notwithstanding the amounts due under the agreement.  Because the vehicle was expensively modified, your agent has advised that, in the circumstances, a sum of £35,000 is appropriate, not £20,000 as stated by the director.

The Lessor has advised they will require £27,825 to settle the agreement, not £21,094 as stated by the director.

1.    Open the Lease/Chattel Mortgage Information screen and click Payout/Return as before.

2.    Select the Retain checkbox and enter the amount owing as £27,825:

3.    Click Save, select a zero VAT rate, click OK and click Exit, as before.

4.    From the Asset Register, realise the Range Rover for £35,000:

5.    The Asset Register will reflect the new surplus correctly:

6.    The payment to the Lessor can now be made.

If leased assets have been entered as fixed charge assets

If the chattels have been entered as fixed charge assets, as described here, the various assets can be realised as usual, with payment being made to the fixed charge holder.

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