Financial leasing

8. If the lessee is a producer, the durable good is shown as gross fixed capital formation (P.51) for the lessee at the beginning of the leasing period. Throughout the leasing period (unless the lessee defaults on the rental payments) the good is shown as a tangible fixed asset (AN.III) in the balance sheet of the lessee. Subsequent capital consumption (K.1) is shown in the accounts of the lessee. At the end of the leasing period, either (a) the lessee buys the good at its residual value when it remains on his balance sheet, or (b) the good reverts to the lessor, when it is shown as negative gross fixed capital formation for the lessee and thus leaves the lessee's balance sheet, and may enter the balance sheet of the lessor or that of a third party, to whom the lessor has sold on.

9. If the lessee is a household acting as a final consumer, the durable good is treated as if bought by the lessee for the purpose of final consumption at the beginning of the leasing period. This means that the purchaser's price of the leased good is part of the lessee's final consumption expenditure (P.3) at the beginning of the leasing period and that the good appears only as a consumer durable in the memorandum item to his balance sheet.

A loan (F.4) is imputed from lessor to lessee. The principal of this loan is the purchaser's price of the leased good plus transfer costs (if any). The outstanding imputed loan (AF.4) is shown in the lessor's and lessee's balance sheets as a financial asset and liability, respectively. Payments of rental are considered to comprise two elements, repayment of principal (F.4) and interest (D.41), with the final repayment coinciding with the termination of the financial lease.

10. The interest rate on the imputed loan is implicitly determined so that accumulated repayments over the leasing period exactly equal the principal. When rental remains constant from period to period, the interest part of rental will decline over time, while the repayment part will increase correspondingly, as for a loan payable in equal instalments. When principal, rental and length of the leasing period are known for each contract, the interest rate, the interest payments and the repayments can easily be calculated using standard formulae. When detailed data on each leasing contract are not available, which is often the case in practice, reasonable assumptions must be made in order to carry out these calculations. In many countries business accounting treats financial leasing in a similar way as described here, which facilitates the data situation.

11. Financial lessors' productive activity is financial intermediation. Usually lessors do not charge explicitly for their intermediation services. Their output is therefore mainly or exclusively financial intermediation services indirectly measured (FISIM), calculated similarly to other financial intermediaries. Some financial lessors incur liabilities to other independent units when interest payable is observable and the calculation of FISIM is straightforward. Other financial lessors incur liabilities only to their parent companies when interest payable may be difficult to observe. In the latter case it may be necessary to estimate the amount of interest payable by using an appropriate interest rate.

Financial leasing corporations are classified in the institutional sub-sector S.123 'Other financial intermediaries except insurance corporations and pension funds'. The activity classification is NACE rev. 1 class 65.21 'Financial leasing'.

12. The ESA's treatment of financial leasing implies that the leased good does not appear in any of the lessor's accounts. Whether or not the lessor is resident or non-resident is thus of no consequence to the treatment of the good itself. If the producer or seller of the good is resident while the lessee is non-resident, the leased good is treated as if exported (P.61) when the lessee takes possession of it, i. e. at the beginning of the leasing period. If the producer/seller is non-resident while the lessee is resident, the good is considered to be imported (P.71) when the leasing period begins.

If the lessor is resident while the lessee is not, a loan (F.4/AF.4) is imputed from a resident unit (the lessor) to a non-resident unit (the lessee). If the lessor is non-resident and the lessee is resident, a loan is imputed from a non-resident unit (the lessor) to a resident unit (the lessee). As in the case of leasing transactions between residents, rental payments are broken down into interest (D.41) and repayments of principal (F.4).