Accounting & Bookkeeping & Small Business Forum

[Guest]

I am doing the books for a coffee distributor. The distributor requires that you use his coffee machines and cappuccino machines if you are going to buy his coffee products. The coffee machines are loaned to the stores as long as they continue to purchase the distributor’s coffee products.

The distributor is loaned the coffee machines, at no cost, by the coffee manufacturer. However, if the machines are lost or stolen the distributor is ultimately liable for them.

My question is, do I list these coffee machines that were loaned to the distributor (and subsequently loaned to the stores) as an asset on the distributor’s books? If not assets, then what?

Thanks in advance, Brenda.

[Guest]

Brenda--- First they are not assets in the traditonal sense in that the distributor didn't purchase the machines. The other alternative some may suggest is that they could be considered Capital Lease items, but by definition a Capital Lease is one in which the Lessee obtains significant property rights. Although not legally a purchase, theoretical substance governs over legal form and requires that the leased property be recorded as an asset on the lessee's books. So what's left as a way of identifying the Coffee Equipment is an Operating Lease which would not show up on the distributors balance sheet. You could make a footnote disclosing the Distributors potential liability should one of the machines be broken or stolen. In one of those eventualities I would imagine the distributor would/should hold the store liable for the loss. Hope this helps

[Guest]

Definitely not an asset. I would more than likely record it as a contingent liability.

[Guest]

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