COMMERCE 3AC3 Chapter Notes - Chapter 20: Executory Contract, Finance Lease, Operating Lease

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3AC3
• Professor: Heather Cross

Document Summary

Lessor: owns property and collects periodic cash payments. Manufacturer finance company: a subsidiary to a company that handles the leasing arrangements o. Independent finance company: an intermediary who orders the capital assets and matches with those in need. Less costly financing for lessee, tax incentives for lessor. Executory contract: terms are set to be fulfilled at a later date. Lessee does not own the property so should not capitalize. Classification approach: classified and accounted for based on economic substance. Can be recognized as capital lease if lessee eventually purchases out the asset. Capitalize leases are similar to instalment purchases. Not just acquire the physical asset, but the contractual right to use. Follow the classification approach (leases similar to instalments) Recognized as capital or finance leases and generally recognized as ppe. Lessee records asset & liability, lessor records receivables. Classify as operating lease if benefits and risks are not transferred from one party to another ezlemonstudy.