I hope everyone is feeling good 6 days out… here is your question: What type of lease classification do lessees prefer, what type do lessors prefer, and why?
lessees operating : better leverage ratios lessors: capital: Can depreciate the asssets
Not sure about the lessors line. Isn’t the big advantage for a cap lease from the lessors perspective the fact that they recognize that nice $$ early on?
If it is a sales-type capital lease, gain or loss is immediatelly recognized. If it is a direct sale capital lease, more interest is recognized in the early years of the lease. Edit: forgot to mention that yes, lessors prefer capital leases, lessees prefer operating leases(keep the debt off the BS)
you are all correct Generally, lessees prefer operating leases to effectively keep debt off-balance sheet and report better financial ratios. Lessors prefer capital lease treatment as they recognize income sooner. For sales-type leases, lessors recognize a gain (or loss) on sale immediately, while under direct financing leases, more interest is recognized early in the lease.
lessees operating : better leverage ratios lessors: capital: Can depreciate the assets My bad !!! Got confused… Yes the biggest advantage is the early recognition of gains for cap lease