BU397 Lecture Notes - Lecture 10: Finance Lease, Operating Lease, Executory Contract
Document Summary
Determination between finance and capital = virtually the same some cosmetic differences but the two are interchangeable. Importance of leases: leasing is popular because it is a cost-effective way of financing property and equipment. This is especially true for items that become obsolete quickly: from an accounting standpoint, leases have been controversial because many are (cid:498)off-balance sheet(cid:499) Standard setters have been concerned about this lack of transparency for many years. Companies have ability to deliberately structure business as operating lease (off balance sheet) Leasing environment: a lease is a contractual agreement between the lessor and the lessee. The lease gives the lessee the right to use specific property (owned by the lessor) The lease specifies also the duration of the lease and rental payments: the obligations for taxes, insurance, and maintenance (executory costs) may lease. Lessor = party financing acquisition of asset be assumed by the lessor or the lessee or divided.
