Chapter 17: Leasing: Theory and Practice

The following sections are included:

• Introduction

• Reasons and Types of Leasing Arrangements

  • Direct leasing

  • Sale and leaseback

  • Leverage leasing

• Accounting for Leases

  • Capital lease treatment

  • Accounting for operating leases

  • Accounting for leases from the lessor’s standpoint

• Lease Accounting Updates

  • Key updates & changes to leasing standards under U.S. GAAP

  • Revised criteria for determination of operating versus capital lease

  • Updates to leasing standards under IFRS

  • Impacts of new leasing standards to financial statements & ratios

• Cash Flow Estimation and Present Value Analysis of Lease or Buy Alternatives

  • Present value — Lease

  • Present value — Buy

• Valuation of Riskless and Risky Cash Flows for the Lease or Buy Decision

• CAPM and the Lease of Buy Decision

• Options to Evaluate Salvage Values in Financial Leases

• Summary

• Appendix 17A — Derivation of Discount Rate for Riskless Cash Flows

• Appendix 17B — Application of APV Method for Leasing Decision