Operating lease

PrepNuggets

Like a rental arrangement, the leased asset remains on the lessor’s balance sheet. However, at inception of the lease, the lessee still has to report a “right-of-use” asset and lease liability of the same amount.

The lessee recognises a single lease expense in its income statement, which is a straight-line allocation of the cost of the lease over its term.

When the lease payment is received, the lessor records the cash as CFO, and recognises the payment as lease income in the income statement. The lessor will keep the leased asset on its balance sheet and recognise depreciation expense over the assets useful life.   

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