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Capitalizing Leases and Related Assets

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One alleged advantage of leasing voiced in the past is that it kept liabilities off the balance sheets, thus making it possible for a firm to obtain more leverage than it otherwise could have. This raised question of whether or not both the lease obligation and the asset involved should be capitalized and shown on the balance sheet. Discuss the pros and cons of capitalizing leases and related assets.

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This solution discusses the pros and cons of capitalizing leases and related assets.

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Arguments in Favor of Capitalization of Lease
- Lease is providing the exclusive use rights on leased asset to the lessee and like the commitments for any other form of credit is to met, the lease payments are to be made by the stipulated date and are compulsory. Hence, leases should be treated as both assets and liabilities.
- Having a common policy for lease capitalization would bring more transparency in the ...

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