Finance lease and Matching: Difference between pages

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A finance lease usually involves the lessee (user of the asset) paying - over the life of the lease - the full cost of the asset plus a return on the finance effectively provided by the lessor.
1.  
 
The lessee-user effectively retains substantially all the risks and rewards of ownership.
However, the lessee does not obtain legal title to the leased asset.


Under IAS 17 and SSAP 21, finance leases have to be accounted for 'on balance sheet' by the user of the asset.
Arranging that in a portfolio of assets and liabilities the cash flows generated by the assets can be expected to meet the liability payouts either because (1) the assets generate income of the right amount at the right time or (2) because the market values of the assets are linked to (positively correlated with) the market values of the liabilities.
This means that the liability to pay (the capital element of) the future lease instalments is recognised and disclosed on the face of the balance sheet.


Also known as a ''capital lease'', especially in the US.
 
2.
 
Equalising or approximating the modified duration of assets and liabilities in a portfolio, to manage interest rate risk.
 
 
3.
 
Equalising or approximating both the modified duration and the modified convexity of assets and liabilities in a portfolio.
 
 
4. ''Financial reporting''
 
The Accruals concept in accounting.




== See also ==
== See also ==
* [[Actuarial method]]
* [[Accruals concept]]
* [[ED 2010/9]]
* [[Correlation]]
* [[Finance charge]]
* [[Diversification]]
* [[Hire purchase]]
* [[Immunisation]]
* [[IAS 17]]
* [[Interest rate risk]]
* [[Implied rate of interest]]
* [[Modified convexity]]
* [[Lease]]
* [[Modified duration]]
* [[Off-balance sheet finance]]
* [[Portfolio immunisation]]
* [[Operating lease]]
* [[SSAP 21]]
 


==Other links==
[[Category:Manage_risks]]
[http://www.treasurers.org/node/8924 Students: A Lesson on leases, The Treasurer, April 2013]

Revision as of 11:26, 10 September 2020

1.

Arranging that in a portfolio of assets and liabilities the cash flows generated by the assets can be expected to meet the liability payouts either because (1) the assets generate income of the right amount at the right time or (2) because the market values of the assets are linked to (positively correlated with) the market values of the liabilities.


2.

Equalising or approximating the modified duration of assets and liabilities in a portfolio, to manage interest rate risk.


3.

Equalising or approximating both the modified duration and the modified convexity of assets and liabilities in a portfolio.


4. Financial reporting

The Accruals concept in accounting.


See also