RSM320H1 Chapter Notes - Chapter 20: Executory Contract, Finance Lease, Operating Lease
Document Summary
Leasing is popular because it is a cost-effective way of financing property and equipment. This is especially true for items that become obsolete quickly. From an accounting standpoint, leases have been controversial (cid:271)e(cid:272)ause (cid:373)a(cid:374)(cid:455) a(cid:396)e (cid:862)off-(cid:271)ala(cid:374)(cid:272)e sheet(cid:863) Standard setters have been concerned about this lack of transparency for many years. A lease is a contractual agreement between the lessor and the lessee. The lease gives the lessee the right to use specific property (owned by the lessor) The lease specifies also the duration of the lease and rental payments. The obligations for taxes, insurance, and maintenance (executory costs) may be assumed by the lessor or the lessee or divided. In canada, there are three main types of lessors: manufacturer finance companies. Subsidiaries whose main business is leasing (e. g. , honda canada finance inc. ) 100% financing at a fixed rate: no down payment required, rate charged is fixed for the term of the lease. Protection from obsolescence: property can be upgraded.
