ABSTRACT
Under a finance lease, the lessee controls the use of an asset without legally owning it. Accounting standards [SSAP 21/IAS 17] require reporting according to ‘economic substance’ rather than ‘legal form’. Thus lessees must capitalize finance leases and show them as fixed assets on the balance sheet. The discounted value of the total unpaid finance lease rentals appears as a creditor. The result is much the same as if the lessee had borrowed to purchase the asset outright.
