Economic risk and Finance lease: Difference between pages

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The risk associated with changes in exchange rates, local regulations or business environment, which could disadvantage the company’s long-term economic model or favour the services or products of a competitor.  
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.
This type of exposure is very difficult to mitigate.
 
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.
 
Accounting standards require finance leases to be accounted for 'on balance sheet' by the user of the asset.
 
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.
 
 
Relevant accounting standards include Section 20 of [[FRS 102]], and IFRS 16.
 
 
Finance leases are also known as ''capital leases'', especially in the US.


Also known as economic exposure.


== See also ==
== See also ==
* [[Economic exposure]]
* [[Actuarial method]]
* [[Exchange rate]]
* [[Finance charge]]
* [[Hire purchase]]
* [[IFRS 16]]
* [[FRS 102]]
* [[Implied rate of interest]]
* [[Lease]]
* [[Off balance sheet finance]]
* [[Operating lease]]
 
 
 
===Other links===
[[Media:SepOct17TTlloyds40-41.pdf| Lease accounting change, The Treasurer 2017]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Corporate_finance]]

Revision as of 17:20, 29 January 2022

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.

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.

Accounting standards require finance leases to be accounted for 'on balance sheet' by the user of the asset.

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.


Relevant accounting standards include Section 20 of FRS 102, and IFRS 16.


Finance leases are also known as capital leases, especially in the US.


See also


Other links

Lease accounting change, The Treasurer 2017

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