Do you have questions you would like answered by your peers in the proformative community?

Anonymous Consulting CFO

Company A signs for capital lease on behalf of Company B, a customer. Acctg treatment?

Asked on June 26, 2016

A small company used it's strong credit profile to sign a capital lease of computer equipment for it's customer's use, and the customer is making the lease payments. What would be the accounting treatment, and - short of having the other company assume the lease - is there a way to enable the small company lessee not to show the lease and it's payment stream on its financials (as it wants to minimize what is shown as its debt payment outlays)?

Answers

EMERSON GALFO CFO • June 25, 2016

If I was to structure the transaction, I would have made the customer pay the company for the lease payments. It is for all intents and purposes a sublease You still have to show the liability and YOUR payment but net out (as a reduction of debt payment outlays) payments by the customer.

I see no other option. You have to recognize liability in your books as you are the signatory. There should be a separate sublease contract, If the customer absconds with the equipment, there is no document trail and/or recourse. Your risks are magnified without this kind of arrangement/documentation.

Want to join the conversation? Submit an answer or ask a question by emailing us at [email protected]

Submit an answer