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Leasing R&D Equipment

Grace Johnson's Profile

We are considering leasing R&D equipment.

I am wondering if we should consider the leasing guidance (FAS 13) if we lease equipment used for R&D purposes as R&D is typically expensed as incurred. Should we go through the FAS 13 criteria to determine whether it qualifies as a lease and then whether it should be classified as a capital or an operating lease?

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Grace;

Yes and yes. I believe you may end up expensing it in the end anyhow, but you still need to go through the motions on properly classifying it prior to the decision to expense.

Cheers,

KP

Anonymous
(Senior Finance Analyst) |

Hi Keith,
Thanks for your response.
Just to make sure I am clear, the reason you think we may end up expensing anyway is because we may end up classifying the equipment a an operating lease?
Best,
Grace

Ray Calabrese
Title: Treasurer
Company: Interim Treasurer
(Treasurer, Interim Treasurer) |

Have you checked the latest guidance on lease accounting effective this year. My recollection is that you can only keep this off the balance sheet if the lease is less than 12 months. This may be okay for little ticket items, but larger tickets may need to be capitalized.

Jeff Langston
Title: CFO
Company: Baxter Franchise Group
(CFO, Baxter Franchise Group) |

If you have already decided to lease VS buy or rent, then the 4 criteria within FAS13 will help you figure out if it is a capital or operating lease.

Ray is right. There is no exclusion from capitalization for short-term leases (typically 12 months or less)

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