Yes, a finance lease contract gives rise to a financial instrument for both the lessor and the lessee.

For the lessor, the financial instrument is the receivable arising from the lease payments due from the lessee. The receivable is recognized at the present value of the lease payments, which includes the interest income component.

For the lessee, the financial instrument is the lease liability arising from the lease payments due to the lessor. The lease liability is recognized at the present value of the lease payments, which includes the interest expense component.

The calculation of the present value of lease payments is based on the lease term, the lease payments, and the discount rate. The discount rate used is the interest rate implicit in the lease, which is the rate that makes the present value of lease payments equal to the fair value of the leased asset.

Pl tabulate the calculation:

Calculation of lease liability for lessee:

Particulars

Amount

Lease payments ($ 10,000 per year for 5 years)

$ 50,000

Present value factor (at 8% for 5 years)

3.9927

Present value of lease payments

$ 199,636

Calculation of receivable for lessor:

Particulars

Amount

Lease payments ($ 10,000 per year for 5 years)

$ 50,000

Present value factor (at 8% for 5 years)

3.9927

Present value of lease payments

$ 199,636

Less: carrying amount of leased asset

($ 200,000)

Net investment in the lease

$ (364)

Note: The carrying amount of the leased asset ($200,000) is not included in the calculation of the financial instrument for the lessor. Instead, it is subtracted from the present value of lease payments to arrive at the net investment in the lease.