Entering a Capital Lease

Q: How does your model handle a capital lease? I want to show the assets and depreciate, but will only have lease payments to cover monthly. How do I show the capital equipment without showing the up front capital expense?

A: The model easily accommodates that. A capitalized lease is the as debt, so we will only make a couple of entries and the model will do the rest. The two entries are 1) lease terms, and 2) leased equipment detail as shown below:

Step 1 - Enter the Lease Terms in the Debt Assumptions Input: Let’s say that in Month 6 of your plan you are leasing $100k of equipment with a no money-down lease with a 10% lease finance cost over 60 months. You would enter $100k in the Debt schedule for Month 6 at a downpayment of 0%, an interest rate of 10%, and a term of 60 months as follows:

Step 2 - Enter the Leased Equipment Details in the Asset Investment as a Tangible Asset: You would enter the description of the capital equipment at a cost of $100,000 in Month 6 with the appropriate useful life (I’m using 60 months in the example below):

With just those simple entries, our app will do the rest for you, including: 1) adding the cash proceeds from the lease into the Cash Flow and Balance Sheet, 2) using the cash proceeds to acquire the leased equipment, 3) building a depreciation table, and 4) adding the proper depreciation expense to the Income Statement each month.