The Complete CFO Handbook

Chapter 17. Leasing

Agenda

Item 1	Describe the different types of leases: nontax‐oriented leases and tax‐oriented leases.
Item 2	Explain the different reasons typically offered for leasing and assess their validity.
Item 3	Identify the different types of lease programs available to a company interested in leasing and the potential lessors.
Item 4	Describe the financial reporting requirements for lessees.
Item 5	Describe the federal income tax requirements for a lease to qualify as a true lease.
Item 6	Explain the impact of FASB No. 13 on synthetic lease financing.
Item 7	Describe an economic model for valuing a leasing: determining whether to lease or borrow to buy an asset.
Item 8	Explain a leveraged lease and how it differs from a single‐investor lease.

A lease is a contract over the term of which the owner of the property or equipment permits another entity to use it in exchange for a promise by the latter to make a series of payments. The owner of the equipment is referred to as the lessor. The entity that is being granted permission to use the equipment is referred to as the lessee.

CFOs recognize that earnings are derived from the use of an asset, not its ownership, and that leasing is simply an alternative financing method. More equipment is financed today by equipment leases than by bank loans, private placements, or any other method of equipment financing. Nearly any asset that can be purchased can also be leased, from aircraft, ships, satellites, computers, refneries, and steam‐generating ...