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 ?
Release date- 22082019 - The Financial Accounting Standards Board's new accounting standard for operating leases is not expected to have an effect on the vast majority of Fitch-rated not-for-profit hospital and health system ratings, says Fitch Ratings, because Fitch currently includes operating leases in its debt-equivalent calculations.
Under IFRS 16, both finance as well as operating leases need to be reported on the balance sheet of lessees, with some exceptions.
DFDS A/S (CPH: DFDS), an international shipping and logistics company, announced on Friday that effective 1 January 2019, it will implement the new IFRS accounting standard on leases requiring all lease contracts, including operating leases, to be recognised in the balance sheet.
Historically, operating leases had been an easy, legal, and Generally Accepted Accounting Principles (GAAP)-approved way of keeping debt off the balance sheet for many years; however, that time has now passed.
Operating leases, however, are supposed to be footnoted on the balance sheet but are expensed on the income statement.
Transactions include debt placements, tax-subsidized leases and operating leases. Burnham Sterling is affiliated with Greenwich Aircraft Leasing, a lessor/manager of 32 commercial aircraft on lease to major airlines in Europe and the Americas.
Similar to capitalizing operating lease payments for business evaluation purposes, such as ratio analysis, current operating leases can also be capitalized to ascertain potential business valuation effects resulting from the new lease accounting.
At the present time, the accounting standard AASB 117 (IFRS 17) distinguishes between finance leases and operating leases on the basis of "risks and rewards" and requires the capitalisation of finance leases, with the recognition of the leased asset and lease liability in the balance sheet, while operating leases are treated as mere expenses.
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.
Lessees will now recognize operating leases on the balance sheet.
The objective of the new leasing standard is to eliminate the estimated $1.25 trillion in off-balance-sheet financing found in most operating leases, address concerns from the 2005 Securities & Exchange Commission (SEC) report on off-balance sheet activities, provide more robust information in the disclosure notes about operating leases, and increase transparency and comparability across organizations.
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.