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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

Leveraged Leases

From the standpoint of the lessee, leveraged leases are classified and accounted for in the same manner as leases that are not leveraged. The following information deals with leveraged leases from the standpoint of the lessor.

A leveraged lease has all of the following characteristics:

  • Lease does not meet the definition of a sales-type lease. A sales-type lease is not accounted for as a leveraged lease.
  • Lease involves at least a lessee, a long-term creditor and a lessor.
  • Long-term creditor provides nonrecourse financing to the lessor.
  • Lessor’s net investment declines during the early years and rises during the later years of the lease.

The lessor records a leveraged lease net of the nonrecourse debt. The net of the balances of the following accounts represent the initial and continuing investment in leveraged leases:

  • Rentals receivable, net of principal and interest on the nonrecourse debt.
  • Estimated residual value of the leased asset does not exceed the amount estimated at the inception of the lease.


When leveraged leasing is a significant part of the lessor’s operations, the components of the net investment balance in leveraged leases are disclosed in the Notes to the Financial Statements.

Glenn Hegar
Texas Comptroller of Public Accounts
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