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Updated almost 5 years ago on .

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1
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Parker Bayer
0
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1
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Operating Lease Treatment

Parker Bayer
Posted

For companies that were required to include operating leases on their financial statements, they show large increases in PP&E as well as long term debt. This inflates changes in net capital expenditures, changes in working capital, reinvestment rates, profit margins etc... I know in the past that operating leases were treated like debt and amortized, but how are they supposed to be treated now so it doesn't exaggerate the numbers? Should the lease asset/liability be removed? Since it is an asset is there an additional depreciation expense recognized? Is it a rental expense or a an interest expense? I was specifically looking at Chipotle. The company recorded an operating lease asset/liability in 2019 of about $2.5 bill, and I am not sure how that should be accounted for. 

Any guidance would be greatly appreciated.