Operating leases

CFA Level II
#1

What is the cashflow impact to the lessor from an operating lease. Specially how to account the depreciation expense

#2

Bump

#3

there is NO depreciation expense… it is off balance sheet financing. you pay rental expense that is it …

S2000’s references …

http://financialexamhelp123.com/leases-i-criteria-for-classification/

http://financialexamhelp123.com/leases-ii-calculations/

http://financialexamhelp123.com/leases-iii-effect-on-financial-statements-and-ratios/

#4

No. I’m asking from the point of lessor. Rental income would be an operating cash inflow. Can we exclude the impact of depreciation to the cf

#5

you gave your equipment for someone else to use. You received Rent for it.

Where does depreciation figure in?

If it figured in somewhere on that piece of equipment - you better be prepared for a big audit … and fines and retribution.

so as lessor you would need to account for the equipment rental received.

you also own the equpment - so you can depreciate it …

My original statement was wrong!

#6

Depreciation doesn’t affect pre-tax cash flow.

The lessor’s taxable income will be lower because of the depreciation, so their taxes will be lower.

#7

Thanks

#8

You’re welcome.