Capital leases essentially represent capital acquisitions and therefore must be handled in a like manner. Additionally, capital lease payments may not provide an accurate representation of the center’s depreciation for the asset(s). For this reason service and recharge centers’ capital lease principle payments must be charged to the center’s reserve account (budget) and not to the center’s operating account (budget). To recover the cost of the asset(s) the center must determine the appropriate annual center depreciation which may be charged to the center’s operating account and recovered through their recharge rates. Note, external interest associated with capital leases should be charged to centers’ operating accounts and recovered through the recharge rates.
Service/recharge centers who are presently charging capital leases to their operating account may be grandfathered on this change on a case-by-case basis but only for current capital leases. Future capital leases for these centers must be handled in the above manner. If your center is one that presently has this arrangement in place please contact Management Accounting and Analysis so that we may assess your specific situation and advise you of actions to be taken.