Saturday, August 21, 2010

Watch Your Leasing!

Just in:

WHEN you lease something—a boat, a warehouse, a machine for making ball-bearings—you agree to pay for it bit by bit over time. So it is like incurring a debt, say the International Accounting Standards Board (IASB) and America’s Financial Accounting Standards Board (FASB). Therefore, it should be on your balance-sheet.


The effects of that include a serious uptick in debt-t0-capital ratios, especially for airlines and retailers.

What the article does NOT tell us is this: if the leases are converted to debt, will lease-payments be deductible? Typically, only interest paid (on loans) is deductible, not principal. Lease payments, OTOH, are mostly deductible expenses.

HT: ZeroHedge, who opines that GE will be the hardest-hit (really, GECapital.)


neomom said...

That's gonna hurt.... and not just for Capital. The Industrial divisions sell that way too when customers don't have the full capital to buy it outright.


Tim Morrissey said...