Circular No. 1285 — Adjustment to Present Value of Leasing Contracts and Accounting Procedures for Financial Institutions

CIRCULAR NO. 001285

To
Development Banks, Investment Banks, Savings Banks, Leasing Companies and Real Estate Credit Societies

We communicate that the Board of Directors of the Central Bank of Brazil, in a meeting held on January 27, 1988, based on Article 4, item XII, of Law No. 4,595 of December 31, 1964, by competence delegated by the National Monetary Council, decided to establish that the institutions mentioned above must adopt the following procedures in their accounting records, with a view to adjusting losses arising from leasing contracts, considering the entire fiscal year of 1987, at the time of the balance sheet of December 31, 1987, and monthly, starting from January 1988.

2. The present value of the lease payments of the contracts is calculated, using the internal rate of return of each contract. For this purpose, Leases Receivable, including assigned ones, RESIDUAL VALUES TO BE REALIZED, including those received in advance, and those registered in CREDITS IN LIQUIDATION are considered.

3. The accounting value of the contracts is determined by the sum of:

(+) LEASES RECEIVABLE - INTERNAL RESOURCES

(+) LEASES RECEIVABLE - EXTERNAL RESOURCES

(+) LEASES RECEIVABLE - PUBLIC FINANCIAL INSTITUTIONS

(-) RENTALS TO BE APPROPRIATED

(+) RESIDUAL VALUES TO BE REALIZED

(-) RESIDUAL VALUES TO BALANCE

(+) CREDITS IN LIQUIDATION

(+) LEASED ASSETS

(-) VALUE TO BE RECOVERED

(-) ACCUMULATED DEPRECIATIONS OF LEASING FIXED ASSETS

(+) ASSETS NOT DESTINED FOR USE

(+) LOSSES IN LEASING

(-) ACCUMULATED AMORTIZATIONS OF DEFERRED EXPENSES

- Of Losses in Leasing

4. The value resulting from the difference between items 2 and 3 constitutes the portfolio adjustment, on December 31, 1987, and subsequently, each month.

5. The value of the adjustment calculated according to item 4 is registered, by complement or reversal, to the ACCOUNTS LEASING EXPENSES or RENTALS FROM LEASING, in counterpart with INSUFFICIENCIES OF DEPRECIATIONS or SURPLUSES OF DEPRECIATIONS.

6. For the purpose of accounting for the monthly adjustment provided for in item 5, it is observed that:

a) its registration must be made by the gross value;

b) the portion of non-deductible Income Tax in the period, applicable to negative adjustments, must be registered in INCOME TAX TO BE RECOVERED;

c) the portion of Income Tax relating to positive adjustments, taxable in subsequent periods, is registered in PROVISION FOR DEFERRED INCOME TAX;

d) the amount registered in accordance with this Circular must be subject to an explanatory note in the financial statements, in order to highlight its effects.

7. The adjustments accounted for on December 31, 1986, in accordance with item 4 of Circular No. 1,101 of December 30, 1986, will be transferred to the account INSUFFICIENCIES OF DEPRECIATIONS or SURPLUSES OF DEPRECIATIONS, restoring the correct balances of the accounts LOSSES IN LEASING and ACCUMULATED AMORTIZATIONS OF DEFERRED EXPENSES, subtitle Of Losses in Leasing.

8. The provision constituted in accordance with letter "g" of item 4 of Circular No. 1,101 of December 30, 1986, must be reversed, taking into account the adjustment procedures established above.

9. Institutions that do not possess the accounting titles cited in this normative instrument must use the equivalent accounts of their respective Chart of Accounts.

10. This Circular will enter into force on the date of its publication.

Brasília-DF, January 28, 1988

Keyler Carvalho Rocha Wadico Waldir Bucchi Director Director