Question

Question on operating lease.

Answer 1

I've got a question on Operating Lease.

The current year operating lease is $10.8 Million, however in the annual report, it shows a $8.9 million on the next year's operating lease. That is all the information that is available, as the company renew it operating leases every year.

How should I go about depreciating and including it in my debt?

I've figured that I would just discount the $8.9 million with my cost of debt and get my NPV of debt and just add it into my current debt.

The change in my operating income would be $8.9 x cost of debt = XX Value, i would just add the XX value into operating income and that would be my new operating income.

I don't know if what i did was right, i need some advise. Thank you very much.

Answer 2

Advice*

Answer 3

Is there only one future operating lease expense? Isn't there like a five year prediction or something?
The change in your operating income would be the 8.9million minus the depreciation.

Answer 4

There is only a one year prediction because they renew their lease every year.

How would you calculate the depreciation if there is only 1 figure of opreating lease? (2012's operating lease on the anual report)

Answer 5

I am not sure about what should be done in this case but the adjustment to operating income is Current OL - Depreciation OL. With a 5 year prediction you get the NPV of the operating leases and you divide them by the number of years to get the depreciation. I believe the same should be done here, 8.9 - 8.9/Cost of debt.