The Application Research Of Lease Accounting In Airline Companies

Both domestic and oversea accounting standards separate lease intooperating lease and finance lease at initial recognition. As for accountingtreatment of finance lease, capitalization is required. Both assets andliabilities are required to be recognized. All other leases which are notmatching the criteria of finance lease are treated as operating lease. There isno requirement for operating lease to capitalize. Neither the lease asset northe rental payment commitment is recognized on balance sheet. Therefore,operating lease is considered as a kind of off-balance sheet financing. Civilaviation is an industry in which leases are intensely and widely used. Theindustry in China has been in growth for thirty years. Nowadays, lease is oneof the most important methods in the expansion of domestic airlinecompanies.This article will be based on the accounting treatment of operating leaseand finance lease, to introduce and compare the GAAP difference between operating lease and finance lease, to analyze the impact on both financialstatement and financial ratios. And then consider the status in which theairline companies are wildly using operating leases, use financial analysis toreveal the problems exists in the off-balance sheet financing of operatingleases, propose a revision method to adjust the impact of operating lease onthe financial statement in order to help the users of financial statementunderstand the real financial status of the company.The analysis in this article illustrates, two different lease accountingtreatments are used in airline companies. As the management of airlinecompanies, they have the motivation to conduct an off-balance financing viaoperating lease to avoid recognize liabilities and improve the financial ratios.As the users of financial statement, no matter inside or outside, they need totake an insight looking into the operating lease status of the company and usethe revision method to reveal the real financial status.