Finance lease

A lease reported with amortisation and interest separately, which front-loads the total expense relative to a single straight-line charge.

Where you will meet it

Finance lease appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain how a lessee accounts for leases
  CFA Level I · Financial Statement Analysis

  “Under US GAAP the lessee's classification survives and affects the income statement (IFRS 16 uses a single model): a finance lease reports amortisation and interest separately, front-loading total expense, while an operating lease reports a single straight-line lease cost.”

• Explain how a lessor accounts for leases
  CFA Level I · Financial Statement Analysis

  “A lease that transfers substantially all the risks and rewards of the asset is a finance lease under IFRS; US GAAP calls the equivalent a sales-type lease, with a direct financing lease for cases that fall short of transferring control but still pass the economic substance to the lessee with the help of a third-party residual guarantee.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with F · Glossary