Introduction
Leasing is an important financing activity for large corporate
and financial institutions with the majority not reported on
balance sheet. That is because leases to date have been categorised
as either 'finance leases' (which are reported on balance
sheet) or 'operating leases' (which are disclosed only in
the Income statement and Notes to the financial statements).
Historically, Lease accounting (IAS17) focused on lease
classification:
- Finance Lease - where a lease is
economically similar to purchasing the underlying asset and
reporting the asset (& liability) on balance sheet
- Operating Lease - where a lease gives
rise to an:
- Asset: "A resource controlled by
the entity as a result of past events and from which future
economic benefits are expected to flow to the entity"
