Long-Term Finance Lease Liabilities

Category

Balance Sheet

Units

Currency

US-GAAP elements

FinanceLeaseLiabilityNoncurrentCapitalLeaseObligationsNoncurrent

Reference

Regulation S-X Rule 5-02.22 (Bonds, mortgages and other long-term debt, including capitalized leases); ASC 842

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Long-term finance lease liabilities are the portion of a company's finance lease obligations due more than one year after the balance-sheet date, measured at the present value of the remaining lease payments. They are reported among noncurrent liabilities, and the portion due within a year is shown separately in current liabilities.

Finance leases, known as capital leases before ASC 842, are leases that effectively give the company control of an asset for most of its useful life, so they are accounted for much like buying the asset with borrowed money. The noncurrent liability is the principal still owed beyond the coming year.

Under ASC 842, the lessee records a right-of-use asset and a lease liability at the start of a finance lease, discounting future payments at the rate implicit in the lease or, if that is unknown, its incremental borrowing rate. Each payment is split between interest expense and reduction of the liability. The standard became effective for public companies for fiscal years beginning after December 15, 2018. In XBRL filings the noncurrent amount is tagged FinanceLeaseLiabilityNoncurrent; earlier filings under the capital-lease rules use CapitalLeaseObligationsNoncurrent.

Regulation S-X Rule 5-02.22 places capitalized leases in the same caption as bonds, mortgages, and other long-term debt. Many companies accordingly include the noncurrent finance lease liability in their long-term debt line and describe it in the debt footnote, while others present it separately. The lease footnote gives the maturity schedule of undiscounted payments and reconciles it to the discounted liability.

Analysts generally treat the noncurrent finance lease liability as debt. It is part of long-term debt as commonly defined, and part of total debt, net debt, and enterprise value. Operating lease liabilities are a separate line and are not included here, although some analysts add them when comparing companies that lease heavily with those that own their assets. Before adding finance leases to reported borrowings, confirm they are not already inside the long-term debt figure.