The Study on the Measurement of Leveraged Lease Transactions: in Relation to Four Methods of FASB No.13

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  • Yamada Keiichi
    Doctoral Program, Graduate School of Engineering, Science University of Tokyo

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Other Title
  • レバレッジド・リース取引の測定方法について―FASB No.13の4方法に関連して―
  • レバレッジド リース トリヒキ ノ ソクテイ ホウホウ ニ ツイテ FASB No 13 ノ 4 ホウホウ ニ カンレン シテ

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<p>The purpose of this paper is to examine the validity of four methods of measuring transactions of Leveraged lease as the financing lease, from the standpoint of the lessor, described in FASB No.13, assuming that the loan is nonrecourse-debt to the lessor. Leveraged lease transaction involves at least three parties: lessors, a lessee and a long-term creditor.</p><p>“The ordinary financing lease method” makes no distinction between a leveraged lease and an ordinary two-party financing lease. This method doesn’t recognize that contracts of Leveraged lease transaction and nonrecourse-debt connectedly are valid at the same time. Therefore this method is rejected.</p><p>“The three-party financing lease method” does reflect the three-party nature of the transaction in that the lessor’s investment is recorded net of the nonrecourse debt. Because this method closely follows the cash flow of the transaction, this method shows a gradually declining investment balance throughout the years of the lease, with income recognized at a level rate of return on the declining balance. Accordingly, this method is apprropriate method for measuring for leveraged leases.</p><p>“The investment with separate phases method” includes deferred taxes in the determination of the lessor’s unrecovered investment. There is uncertainty involved in the deferred tax, thereby changing the lessor’s net investment and the pattern of imcome recognition contemplated by the investment with this method. Therefore this method is rejected.</p><p>“The integral investment method” looks upon the earnings from the use of temporarily held funds as constituting an integral part of the lease income. Because this method involves estimation of the secondary earnings and recognition of a substantial portion of them in advance of their occurrence, this method is rejected.</p>

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