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Finance lease is a type of lease - the other being an operating lease. A finance lease (also called a capital lease) effectively allows a firm to finance the purchase of an asset, even if, strictly speaking, the firm never acquires the asset. Typically, a finance lease will give the lessee control over an asset for a large proportion of the asset's useful life, providing them the benefits and risks of ownership. The U.S. Financial Accounting Standards Board and the International Accounting Standards Board announced in 2006 a joint project to comprehensively review lease accounting standards. In July 2008, the boards decided to defer any changes to lessor accounting, while continuing with the project for lessee accounting, with the stated intention to recognize an asset and obligation for all lessee leases (in essence, making all leases finance leases). The projected completion of the project is now 2011. [1] [2] Under US accounting standards, a finance (capital) lease is a lease which meets at least one of the following criteria Following the GAAP accounting point of view, such a lease is classified as essentially equivalent to a purchase by the lessee and is capitalized on the lessee's balance sheet. See Statement of Financial Accounting Standards No. 13 (FAS 13) for more details of classification and accounting.
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