simple question regarding how to view a lease as a debt

[Jimbo]

[ QUOTE ]
isnt it better to just look at it in a cashflow sense? i mean i am always going to have to pay for electricty, but i dont count that as a 100k liftime debt.

[/ QUOTE ]

You can look at it however you like but that doesn't change the accounting guidelines that say a lease obligation is simply a debt with no ofsetting asset.

As for your electricity you didn't sign a contract with the electric company. You can choose to live in a tent if you like, for that matter if you intend on defaulting on your lease don't use it in your net worth calculation either, use the judgement the court will levy.


Jimbo

[pig4bill]

Intuitively, it is not a debt. It's more like a service for which he pays periodically. If he croaks, and his estate is liquidated, the lease more than likely does not enter into the picture.

But I'm not an accountant(thank God), nor do I play one on tv.

[Jimbo]

[ QUOTE ]
If he croaks, and his estate is liquidated, the lease more than likely does not enter into the picture.


[/ QUOTE ]

Just curious as to why you would think that to be true?

Jimbo

[Phone Booth]

[ QUOTE ]
clark,

36months, xxx amount per month, option to buy which i will most likely decline.

on one hand its a debt, since i am legally obliged to make payments otoh it doesn't 'feel' right to count it as a debt.

[/ QUOTE ]

And your "feel" would be right in a sense. If you're going to consider the lease as debt in calculating net worth, you'd also have to consider the ability to use the car for the remainder of the lease as an asset. In almost any reasonable scenario except one involving high and unanticipated inflation, the latter would not completely offset the former, but it's something to take into account.

[prohornblower]

[ QUOTE ]
isnt it better to just look at it in a cashflow sense? i mean i am always going to have to pay for electricty, but i dont count that as a 100k liftime debt.

[/ QUOTE ]

Yeah I kind of see it from this angle. You are obligated to pay your cable bill, energy bill, water, etc... but I certainly wouldn't count it as traditional "debt".

I am renting an apartment right now and my lease runs for 3 more months @ $810/mo. I don't consider this $2,400 of debt when calculating my net worth. I just treat it as money that comes and goes, and is never really mine.

[Jimbo]

[ QUOTE ]
And your "feel" would be right in a sense. If you're going to consider the lease as debt in calculating net worth, you'd also have to consider the ability to use the car for the remainder of the lease as an asset. In almost any reasonable scenario except one involving high and unanticipated inflation, the latter would not completely offset the former, but it's something to take into account.


[/ QUOTE ]

Completely useless when computing a net worth calculation. The reason is you are paying only for the continuing depreciation of the leased automobile. It is different than being upside down in a regular financed automobile. The difference between what you could sell the car for and your principal balance is your equity minus your debt balance so the auto is an asset, but in the example I gave you still have a negative offset. In a lease you have absolutely no principal equity, future use of the vehicle is not considered an asset on a balance sheet.

Jimbo

[Phone Booth]

[ QUOTE ]
[ QUOTE ]
And your "feel" would be right in a sense. If you're going to consider the lease as debt in calculating net worth, you'd also have to consider the ability to use the car for the remainder of the lease as an asset. In almost any reasonable scenario except one involving high and unanticipated inflation, the latter would not completely offset the former, but it's something to take into account.


[/ QUOTE ]

Completely useless when computing a net worth calculation. The reason is you are paying only for the continuing depreciation of the leased automobile. It is different than being upside down in a regular financed automobile. The difference between what you could sell the car for and your principal balance is your equity minus your debt balance so the auto is an asset, but in the example I gave you still have a negative offset. In a lease you have absolutely no principal equity, future use of the vehicle is not considered an asset on a balance sheet.

Jimbo

[/ QUOTE ]

Huh? Who cares what's considered an asset by some specific set of accounting rules (which btw differ significant from country to country and one time period to another and exist mainly for investor convenience) - does the OP have to file his personal accounting records with the SEC? The question is whether the ability to use the vehicle worth something to the OP or not. Whether he can sell it is irrelevant from an accounting standpoint - it merely affects its valuation (obviously a liquid asset is worth more than an illiquid asset).

[Jimbo]

[ QUOTE ]
Huh? Who cares what's considered an asset by some specific set of accounting rules (which btw differ significant from country to country and one time period to another and exist mainly for investor convenience) - does the OP have to file his personal accounting records with the SEC? The question is whether the ability to use the vehicle worth something to the OP or not. Whether he can sell it is irrelevant from an accounting standpoint - it merely affects its valuation (obviously a liquid asset is worth more than an illiquid asset).

[/ QUOTE ]

Phone Booth,

You seem like areal smart person and I enjoy your posts but the OP wrote "calculation my net worth and am wondering how i should view the lease on my car." so perhaps my post has everything to do with answering his question and yours is off topic though has value in and of itself, just not in reply to OP's initial question. I assumed he wanted accuracy, not esoteric fantasy.

Jimbo