The Controversy of Lease Reporting "On or Off" Balance Sheet: With Impact of Varying Discount Rates

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Eleanor Fillebrown


Leases --Accounting

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1993 no.4


Lease transactions have grown in popularity over the years as businesses look for new ways to finance their property, equipment and building procurement.

Since lease financing is more prevalent, the discount rate plays a critical role in lease accounting, especially when considering its impact on a leased asset which may be reflected "on or off" the balance sheet.

Generally speaking, the requirements on the use of the discount rate are reasonable according to the current FASB guidelines. But is it reasonable and necessary to require that the discount rate be the lower between the lessor's implicit interest rate and the lessee's incremental borrowing rate? The writer's opinion differs with this process of selecting the discount rate.

The controversy of an "on or off" balance sheet when reporting the financial conditions with a lease always exists. According to the numerous lease accounting procedures, the accounting treatment of a capitalized lease agreement is reasonable and necessary.