Why is lease financing sometimes referred to as off-balance sheet financing? It appears likely that the FASB...

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Why is lease financing sometimes referred to as off-balancesheet financing?
It appears likely that the FASB and IASB will require all leasesto be capitalized, even those that are now classified as operatingleases. In fact, they have agreed that the leases should be shownon the balance sheets, but they are still debating how to recognizethe lease-associated expenses on the income statements. This couldhave a huge impact on many companies’ financial statements. Forexample, Credit Suisse estimated that the S&P 500 firms useabout $369 billion in assets that are in the form of operatingleases. As such, these are not shown as either assets orliabilities and instead are off the balance sheets.
Explain how the cash flows are structured in order to estimatethe net advantage to leasing.
What discount rate should be used to evaluate a lease? Why?
Define the term net advantage to leasing (NAL).

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4.1 Ratings (599 Votes)

1 Off balance sheet financing as the name suggests is the mode of financing where the organisation doesnt acknowledge the liability of financing on its balance sheet or books SO for eg in case of operating leases only rental See Answer

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Why is lease financing sometimes referred to as off-balancesheet financing?It appears likely that the FASB and IASB will require all leasesto be capitalized, even those that are now classified as operatingleases. In fact, they have agreed that the leases should be shownon the balance sheets, but they are still debating how to recognizethe lease-associated expenses on the income statements. This couldhave a huge impact on many companies’ financial statements. Forexample, Credit Suisse estimated that the S&P 500 firms useabout $369 billion in assets that are in the form of operatingleases. As such, these are not shown as either assets orliabilities and instead are off the balance sheets.Explain how the cash flows are structured in order to estimatethe net advantage to leasing.What discount rate should be used to evaluate a lease? Why?Define the term net advantage to leasing (NAL).