The Economics of and Accounting for Lease Transactions

This chapter explores a company’s decision to enter into a lease contract to finance capital investments. We discuss the motivations behind the lease-versusbuy tradeoff in terms of both the economics of and accounting for lease financing arrangements. Throughout our discussion, we reference academic research related to the lease-versus-buy decision, the factors influencing the extent of leasing activity, the economic consequences of lease financing, and the role of lease-related accounting standards. We also provide a detailed review of the provisions in the current lease accounting standards that were recently issued by the Financial Accounting Standards Board and the International Accounting Standards Board.