when the lessor enjoys the benefits and incurs the risk the lease is an operating le 566604

When the lessor enjoys the benefits and incurs the risk, the lease is an operating lease and no liability appears on the balance sheet of the lessee. When the lessee enjoys the benefits and incurs the risk, the lease is a capital lease and a lease liability appears on the balance sheet of the lessee. The lease life in the American Airlines example of 12 years is less than 75% of the 18 year useful life of the aircraft, making it likely that this lease is an operating lease under U.S. GAAP. If, instead, the lease life were 18 years and the minimum lease payments compensated the lessor for the cost of the aircraft and provided a reasonable return for the risk involved, then the parties would likely treat the lease as a capital lease under both U.S. GAAP and IFRS. The lessee (in this case, American Airlines) would therefore recognize a lease liability on its balance sheet.