Lease Classification. HLL shall have received advice from Ernst & Young LLP, in form and substance satisfactory to HLL, to the effect that the transactions contemplated by the Transaction Documents qualify as operating leases for HLL under United States generally accepted accounting principles for financial reporting purposes.
Lease Classification. If at its inception a lease satisf ies one or more of f our criteria, it is classif ied as a capital lease. The lease contains a bargain purchase option Lease Classification If at its inception a lease satisf ies one or more of 3 f our criteria, it is classif ied as a capital lease. The noncancelable lease term is 75 % or more of the estimated economic li f e of the asset. Lease Classification If at its inception a lease satisf ies one or more of f our criteria, it is classif ied as a capital lease. The present value of the minimum lease payments equals or exceeds 90 % of the f air value of the leased asset. Lease Classification Leases that do not satisf y any of the f our criteria are classif ied as operating leases. Capital Leases OIf an asset is classif ied as a capit al lease, the lessee must record an asset and a liability equal to the present value of the minimum lease payments . OLease payments are allocated between interest expense and principal payment using the eff ective interest method. Capital Leases Minimum Lease payments include: • Amounts of periodic payments • Residual value guarantees • Amount of bargain purchase option • Penalties for nonrenewal • Executory costs are not included Financial Statement Effects OUnder an operating lease total expenses equal total cash f low OUnder a capit al lease total expense equals the sum of the interest payments and the amortization of the leased asset. Financial Statement Effects OOperating and capit al leases give identical cumulative li f etime charges to expense. OThe timing of the expense charges diff ers between the two methods. The capital lease approach leads to higher expense charges in the earlier years. Financial Statement Effects OLessees pref er operating leases f or two reasons. • Operating leases permit “off balance sheet financing.” • Capital leases accelerate expense recognition. OFootnote disclosures enable analysts to make lease comparisons. Lessor Accounting For the lessor two criteria must be met to classif y the lease as a capital lease. • The lease must transfer property rights to the lessee (using the four criteria). • The lease agreement must allow reasonably accurate estimates of lease net cash flows and their collectability. Lessor Accounting For the lessor capital leases may be one of two types • A sales-type lease exists when the lessor is either the manufacturer of the leased asset or a dealer who sells the equipment • A direct financing lease exists when the lessor is a fi...
Lease Classification. In order to classify a lease and accurately quantify the on-going financial and accounting implications, all potential property leases must be assessed by the Force’s Financial Accounting team prior to the lease being signed. The Force’s Financial Accounting team will undertake a simple financial test and consider the terms of the proposed lease against a checklist, in order to decide whether the lease should be classified as an operating or a finance lease. To complete this process, the Force’s Financial Accounting Team requires the following information: • Proposed lease payment per annum. • Proposed lease term – including, if applicable, details of any break points where the lease could either be terminated or extended. • Estimated purchase price of an equivalent asset – it is extremely important that these estimates can be substantiated, and all estimates should be based on professional advice. • Proposed terms and conditions of the lease – if available a draft copy of the lease should be sent to the Financial Accounting Team. In particular, details of associated property costs (e.g. buildings insurance and maintenance costs, utility costs, service charges) and whether the lessor or the PCC will be responsible for such costs once the lease is signed. • Contact details of a named individual – the Financial Accounting team may need to discuss the proposed lease, or request further information. In order to request a lease test, please contact Financial Accounting. The proposed lease will then be assessed, and the results fed back to the originating department as soon as possible. The CC’s CFO may acquire freeholds up to £500,000 and leaseholds with a contract rental value of up to £500,000 over the lifetime of the lease, in the name of the Police and Crime Commissioner. The CC’s CFO may approve all requests to grant a lease with a total contract value up to £500,000 over the lifetime of the lease
