Analysts should make the appropriate adjustments to the financial statements to restate the impact of using operating leases rather than capital leases.
Sale and leaseback of assets refers to a firm selling an asset and then continuing to have the use of that asset through a leaseback arrangement. This can be an attractive way of raising funds for a company with a low credit rating.
Both U.S. and IAS GAAP require that the lessees, in the case of a capital lease, do not immediately recognize any gain on the sale but amortize the gain over the life of the lease. For operating leases the treatment is different under U.S. and IAS GAAP; under U.S. GAAP Amortization over the term of the lease is required, under IAS GAAP the gain can be recognized immediately.
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