The car dealer Velquin launches a promotional finance lease offer at an advertised rate of 1 %, artificially low, whereas the market rate for this type of customer is 9 %. A van, bought for 38,000 and sold for cash at 50,000 (fair value), is leased for 3 annual payments of 17,000, in arrears; ownership transfers to the customer at the end of the lease, with no residual value for Velquin. Compute the revenue and the selling profit to recognise at the commencement date, rounded to the euro.
- Cash selling price (fair value)
- 50,000
- Purchase cost of the vehicle
- 38,000
- Annual payment in arrears
- 17,000
- Number of annual payments
- 3
- Advertised promotional rate
- 1 %
- Market rate of interest
- 9 %