Equipment Capitalization and Cash Flow Accounting Strategies With Lease Backs

In several industries companies and individuals can buyFor instance, if someone buys a new Cessna and
equipment such as machinery, boats or even aircraftleases it back to the flight school that aircraft will have
and then lease them back to rental agencies, marinassome hard flying hours on its airframe, this could
or fixed base operators (aviation). This is a greatincrease maintenance costs and wear and tear on the
accounting strategy allowing someone or company toaircraft lessening its value prematurely even faster
own an asset and have it pay for itself through thethan the allowable tax depreciation schedule.
rental fees. The owner of the asset has the ability toAdditionally, after a couple of years and before the
tax full advantage of the tax write off of this assetaircraft is paid for it might need a new motor when the
and depreciate it as a business in itself, a rentalaircraft hits its TBO.
business, even if the individual owns the item.Further, the flight school may have newer aircraft on
Once the equipment, boat, or aircraft is fullythe line that are owned by the FBO (fixed base
depreciated, paid for the owner of the asset still ownsoperator) which they will attempt to rent first or the
it at its then current book value. Many years back, Istudents and instructors may prefer. Thus, there could
had sold aircraft leasebacks for flying schools andbe a deficit in the monthly maintenance costs, tie-down,
aircraft charter companies, and as well as such aninsurance, and payment of the aircraft. So, before you
accounting strategy looks on paper, it is not always asuse a leaseback accounting strategy for equipment of
clean, crisp and consistent as the proforma may haveany type you need to treat it as a business and
you believe. The accounting of leasebacks is seriousconsider the reality of the inevitable. After all, anyone
business, not to be taken lightly.can make anything look good on paper.