Lesson 4 of 7 · 12 min
Lessor accounting: finance versus operating leases
A finance lessor swaps the asset for a lease receivable and earns interest; an operating lessor keeps and depreciates the asset and earns straight-line lease revenue.
In short
- Lessor accounting is substantially the same under IFRS and US GAAP; classification uses the same five criteria.
- Finance lease: derecognise the asset, recognise a lease receivable at the PV of payments (rate implicit in the lease), book any difference as a gain or loss.
- The receivable earns interest income (effective interest method); it is revenue if leasing is a main business.
- Operating lease: the asset stays on the balance sheet and is depreciated; lease revenue is recognised straight line.
- Cash flow: the whole receipt is an operating inflow under both classifications.
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