Capitalized Lease Obligations

What are Capitalized Lease Obligations?

Capitalized Lease Obligations represent all obligations incurred through the contractual leasing of long-term assets, by which periodic lease payments resemble payments on interest and debt capital. As such, capitalized leases are considered to be a form of long-term debt.

Capitalized leases differ from operating leases in that the tenant assumes both ownership and right of use, whereas an operating lease only transfers the right of use. Property and equipment held under capitalized leases are recognized as depreciable and impairable assets. Contractual payment obligations are recognized as liabilities, of which the amount due within one year is included in the Current Portion of Long-Term Debt.

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