Direct Financing Lease from Lessor Perspective understand, annual, payment, interest

wonderfuldream

Does the lessee pay just interest on the PV of the asset and an annual lease payment? I thought the lessee just pays interest so don't understand why CFI is affected. Any thoughts?

Beatnik

Heres what the way i understand it..

From the lessee perspective, an operating lease payment is just a reduction from CFO. In a financing lease, just the interest portion of the payment is CFO. The principal part of repayment would be CFF.

For the lessor, in a sales type lease he recognized immediate profit and lease revenue from the interest payments through the life of the lease. In a direct financing lease, there is no profit initially recognized, but there is interest revenue through the life of the lease. In both cases, Interest revenue is reported as CFO, and the principal portion is considered CFI.

This is consitent with CF classifications. In GAAP - interest paid and received is CFO, Principal paid is CFF, principal received is CFI

ramzes

But I thought the only money the lessor receives is the interest from the receivable. Where is the money for the principal repayment coming from?