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What does "synthetic lease" mean?



 
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What does "synthetic lease" mean? #1 (permalink) Sun Mar 25, 2007 13:36 pm   What does "synthetic lease" mean?
 

Business English Lesson, Advanced Level

ESL/EFL Test #249 "Business Buzzwords for Better or Worse", question 6

The real estate assets subject to a ......... lease do not appear on the lessee's balance sheet and no depreciation is charged against earnings for SEC reporting purposes, but its structure allows improvements to be depreciated for tax purposes, thus preserving the tax shelter aspect of owning improved real estate.

(a) simulated
(b) synthetic
(c) veritable
(d) virtual

Business English Lesson, Advanced Level

ESL/EFL Test #249 "Business Buzzwords for Better or Worse", answer 6

The real estate assets subject to a synthetic lease do not appear on the lessee's balance sheet and no depreciation is charged against earnings for SEC reporting purposes, but its structure allows improvements to be depreciated for tax purposes, thus preserving the tax shelter aspect of owning improved real estate.

Correct answer: (b) synthetic
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Hi,
How to understand the "synthetic lease" here? And how to understand this whole paragraph better? Thanks a lot!!
FangFang
I'm here quite often ;-)


Joined: 18 May 2006
Posts: 369

What does "synthetic lease" mean? #2 (permalink) Sun Mar 25, 2007 23:42 pm   What does "synthetic lease" mean?
 

.
Good morning, FangFang.

Many of these financial buzzwords were as new to me as they are to you, and I cannot pretend to understand them thoroughly myself.

Here's the Investopaedia definition:

Synthetic Lease

An operating lease that is structured in a way so that it is not recorded as a liability on the balance sheet. Instead, it is considered to be an expense on the income statement. Basically, a synthetic lease allows a company to control real estate without being required to show the real estate as an asset on the financial statements.

If there is still some phrase or structure you don't understand about the sentence, please let me know.
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