Lease capital or operating, impact on FS, differ under IFRS?
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Assume that a lessee leases equipment and insists on terms that qualify it as an operating lease, barely escaping the qualification as a capital lease.
What kind of impact would this type of operating lease have on financial statements and related financial information as compared to the effect that a capital lease would have? Would your answer be different if the company used IFRS?
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Solution Summary
Your discussion is 250 words and contrasts the bright line tests of FASB versus the principle-based standard for IFRS and how they may result in different treatment. The financial statement impact of the different treatments are mentioned.
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FASB uses a "bright line" set of rules for deciding if a non-cancellable lease is a capital or operating lease. For instance, if the lease term is 75% or more of the useful life, it is a capital lease regardless of other lease terms. So, one can create lease terms that cut right up to but not over the bright line to engineer the financial statement reporting result they prefer.
A lease that is crafted to be an ...
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