Why Do Lessees Generally Prefer Operating Lease Treatment? Explain

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The Answer is A lessee would rather not record the asset and liability of a finance lease,even though they are equal in amount at the inception of the lease,as doing so adversely affects solvency ratios such as debt-to-assets or debt-to-equity.A lessee prefers operating lease treatment because it provides off-balance-sheet financing that results in more favourable leverage ratios.In addition,the lease expense under operating lease treatment will be lower than the combined expense of depreciation and interest expense under finance lease treatment in the early years of the lease.(This effect reverses later in the lease; over the life of the lease,the total expense under either lease treatment is exactly the same.

Why Do Lessees Generally Prefer Operating Lease Treatment? Explain

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Why Do Lessees Generally Prefer Operating Lease Treatment? Explain

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Correct Answer:VerifiedShow Answer

Correct Answer:
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