Operating Lease

Operating Lease

Operating lease is a contract wherein the owner, called the Lessor, permits the user, called the Lesse, to use of an asset for a particular period which is shorter than the economic life of the asset without any transfer of ownership rights.

Definition: Operating lease is a contract wherein the owner, called the Lessor, permits the user, called the Lesse, to use of an asset for a particular period which is shorter than the economic life of the asset without any transfer of ownership rights. The Lessor gives the right to the Lesse in return for regular payments for an agreed period of time.

Description: As per the Indian accounting standard, lease payments by the Lesse needs to be treated as an expense on a straight line basis over the life of the lease contract. Lessor will treat leased assets as per their nature in the balance sheet. Lease income from operating leases will be treated as an income on a straight line basis over the life of the lease contract.

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