operating lease

(redirected from Operating Leases)

Operating lease

Short-term, cancelable lease. A type of lease in which the contract period is shorter than the life of the equipment, and the lessor pays all maintenance and servicing costs.

Operating Lease

A lease in which the lessee maintains residence or usufruct of the leased property or asset while the lessor may claim a tax deduction on depreciation. For example, if one rents an apartment for a certain period of time and the lessor repossesses the apartment at the end of the lease, is a common example of an operating lease. See also: Off-balance-sheet financing.

operating lease

A short-term lease (such as that of a cable television connection box on a monthly basis) in which rental payments are made by the lessee and full ownership rights are kept by the lessor. An operating lease contrasts with a capital lease in which ownership of the asset effectively passes from the lessor to the lessee.

operating lease

An important accounting and income tax concept having to do with the determination of whether a lease (usually of personal property, but sometimes of real property) is a true lease, or whether it is a disguised lending arrangement. The operating lease is the true lease, and 100 percent of the payments are treated as expenses for accounting purposes and tax deductibility purposes.Sometimes called an off-balance sheet lease,meaning not that the lease is hidden or disguised,but it appears on the profit and loss statement rather than the balance sheet. Contrast with capital lease.In order to qualify as an operating lease,the transaction must meet the following requirements:

• The lease term is less than 75 percent of the estimated economic life of the equipment.

• The present value of lease payments is less than 90 percent of the equipment's fair market value.

• The lease cannot contain a bargain purchase option (i.e., purchase option for less than the fair market value).

• Ownership is retained by the lessor during and after the lease term.

References in periodicals archive ?
FASB maintains a dual approach for income statement classification, wherein most existing operating leases will remain operating leases for purposes of income statement recognition.
One of the key changes is that leases previously classified as operating leases under current accounting standards will now be capitalized and thus reported on corporate balance sheets.
For years, companies exploited a financial accounting loophole by structuring lease transactions so they could account for them as operating leases.
TTR, working with the finance industry, has added over 400 tax answers on buyouts of capital and operating leases, greatly reducing time spent on research by tax and accounting professionals.
TRC) recently said that it expects a proposed amendment to the International Financial Reporting Standard (IFRS) for operating leases will have no impact on its ratings on issuers using significant operating leases.
Leasing agreements that did not involve any of these requirements could be accounted for as operating leases.
Porterbrook is one of the three major British rolling stock leasing companies, which supply railway rolling stock and associated equipment to British passenger train operating companies and freight companies under operating leases.
Most operating leases occur naturally as a result of tax rules requiring lessors to take residual risk, and competition is pushing assumed residuals increasingly higher.
Building ownership options through construction or purchase and lease-purchase are generally less costly than using operating leases to meet long-term space needs.