depreciation of leased equipment

Hoping that someone can provide some insight on this question. I’m building a model for a company that manufactures durable medical equipment. The equipment is leased to its customers, and the lease is an operating lease, so the equipment stays on the lessor’s books and is depreciated. Should that depreciation be COGS against the lease revenue, or should it be part of SG&A? I know that depreciation of equipment which is directly used to manufacture inventory is considered COGS, but there is no inventory here, and the resources I have found are more or less ambiguous on the subject. Something to think about: management can use discretion in deciding whether the equipment is depreciated according to time, or according to use. Use would directly cause lease revenue, but time would not. Could it be argued that if depreciation is use-based, then it goes into COGS, but if it is time-based (and therefore gets depreciated whether the machine is in use or it is sitting in a warehouse), then the depreciation is not related to the revenue and should be part of SG&A? Just a thought.






Wtf, why all the “ban” calls? If someone were to answer that question, it would probably benefit plenty of other CFA candidates as well. You guys are ridiculous.

I agree, dlukas…this site is called AnalystForum even though for most members it is a defacto study and support group for plucky CFA candidates. But…the question is probably a better topic for General Discussion rather than here.

Thanks ATH, my mistake–I thought I was posting in General Discussion.