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What is lease termination risk?

The early termination of finance leases, which is a form of options risk, could have a significant impact on the lessor.  The risk of a lessor’s potential loss due to the early, un…


What is lease term?

The date when a lease agreement closes or the parties commit to the principal provisions of the lease, whichever is earlier, is lease inception.  This is when the lessor and the le…


What is lease syndication?

Lease syndication is the process of marketing the debt and any equity funding of a big-ticket lease to providers of a lease’s debt and equity components through the sale of the ass…


What is lease credit risk modelling?

Although finance leases may be viewed as collateralized lending and assessed using similar risk-rating criteria, the lessor’s ownership of and ability to repossess the leased asset…


What is lease amortization?

The value of a limited-life asset’s is reduced as a result of the passage of time or its use in the production of goods and services by means of amortization.  A leased asset’s amo…


What is investing cash flow?

Investing activities involve the acquisition and disposal of long-term assets and other investments that are not considered to be cash equivalents.  Investing cash flow (ICF) is ca…


What is inventories?

The inventories account on the balance sheet reports merchandise held for sale, or supplies used in the manufacture of products to be sold in the normal course of business.  Invent…


What is interest-rate risk?

Changes in interest rates change the lessor’s net interest income by changing the lease cash flows and the net present value of the cash flows.  Interest rate risk (IRR) is the ris…


What is insolvency?

A state of insolvency exists when either an entity is unable to pay its debts as they mature and come due for payment, which can be seen through the analysis of the company’s cash…


What is indirect leasing?

Indirect leasing is a three-party arrangement involving an asset’s supplier (manufacturer or dealer), the asset’s lessee and a lessor that is unaffiliated with the asset’s supplier…


What is income?

Income reflects economic benefits in the form of increases in assets or decreases in liabilities during an accounting period that result in increases in equity, excluding economic…


What is income statement analysis?

Income statement analysis is the assessment of the revenues recognized for a specific period and the cost and expenses charged against these revenues in their transformation into t…


What is IFRS?

International Financial Reporting Standards (IFRS) are the set of principles-based accounting standards, interpretations and framework developed by the International Accounting Sta…


What is group control?

The power to govern the financial and operating policies of a company in order to obtain benefits from its activities is control, which determines whether the entity should be incl…


What is gross profit?

Once operating revenue has been determined, the cost of goods sold must be calculated.  Cost of goods sold (COGS) is the cost of raw material bought and the production of the finis…


What is goodwill?

Goodwill is the excess of the price paid for a company over the acquirer’s share of the net fair value of the acquiree’s identifiable assets (i.e., the amount by which the cost of…


What is fraudulent transfer?

Constructive fraudulent transfer occurs when a party transfers property in exchange for less than its reasonably equivalent value, such that the value of the party is decreased upo…


What is foreclosure? When does foreclosure occur?

The legal proceedings initiated by a creditor to recover the balance of a defaulted obligation in which the creditor holds a security interest or ownership by forcing the disposal…


What is financing cash flow?

Financing activities are those activities of a firm that change the equity capital and borrowing structure of the firm and result in changes in the size and composition of the cont…


What is financial statement analysis?

Financial statement analysis is the process of examining a company’s financial statements – balance sheet, income statement, cash flow statement and statement of changes in equity…


What is financial ratio analysis?

Financial ratio analysis is the process of calculating financial ratios by comparing financial data in a firm’s financial statements and analyzing them to the firm’s current financ…


What is expected credit loss (ECL) under IFRS 9?

The IASB introduced its expected credit loss (ECL) model for measuring impairment of financial instruments with the publication of IFRS 9 in July 2014. It effective date is 1 Janua…


What is equipment?

Narrowly defined, equipment is any movable asset (tangible movable asset) that is repeatedly or continuously used in economic activity in the production of goods and services.  In…


What is direct leasing?

Leasing is frequently provided directly through the supplier of the leased equipment.  Direct leasing is a two-party transaction that involves an equipment supplier (manufacturer o…


What is default?

The failure of a contractual party to perform in accordance with the terms and conditions of an agreement is a breach of contract.  A breach of contract that would be an event of d…


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