Finance Leases

On pages 110 to 112 of the printed book, I explain how some leasing agreements are treated, for accounting purposes, as “finance leases”.

This means that we account for them as if the company had taken a loan from the leasing company and bought the asset outright. The company makes monthly or quarterly payments to the leasing company for an agreed period of time. Each payment is partly interest on the loan and partly repayment of the principal amount of the loan.

If you want to see how the calculations are done, you can download this spreadsheet. If you want, you can enter the details of an existing or potential lease agreement of your own. You can change any bright red number in the spreadsheet.

Sadly, I have to remind you that this is an educational tool only and that you should bear in mind the terms of use of this website and any materials you download from it. Please click here to see the terms.