How Lessors Report Capital Leases Classified as Sales-Type Leases
Capital leases are treated by the lessee as though the asset was purchased and financed by the seller. For the lessor, however, the accounting treatment depends on whether the lease is classified as direct financing or as a sales-type lease.
If the present value of future lease payments is greater than the asset’s cost the lease is treated as a sale of the asset. The asset value is recorded as revenue at lease inception, and the asset cost is recorded as cost of goods sold. The lessor will also report interest income on the lease payments as received.
As with a direct-financing type lease, the value of the asset is replaced by a lease receivable of equal value on the balance sheet.
For more information, see all articles on: Accounting, Common Size Analysis, Financial Statement Analysis, Fundamental Analysis, Ratio Analysis See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
