Lease and service for product life‐cycle management: an accounting perspective

Lease and service for product life‐cycle management: an accounting perspective Purpose – Previous research in lease finance and evaluation has given little consideration to environmental factors. The purpose of this paper is to add to the literature by analysing how leasing provides a more attractive option than selling and extended producer responsibility (EPR) in helping to close product life‐cycle loops, extend the useful life of products, and increase environmental benefits. Design/methodology/approach – This paper revisits the accounting concepts of asset depreciation, residual value and cost of leasing and proposes methods to incorporate these concepts into the “closed loop” lease and service mode for product life‐cycle management. Findings – For business, the “closed loop” lease and service mode changes asset values through the extension of the asset's useful life and in particular, the increase of the residual value of the product (i.e. recoverable value to the producer/lessor). Such changes reduce the cost of leasing to the advantage of both lessor and lessee. However, the argument about a “win‐win” monetary and environmental outcome being associated with leasing presents several challenges for current accounting standards in terms of recognition of lease and lease revenue, recognition of intangible assets and internalisation of environmental costs and impacts associated with the leasing process. Originality/value – To date, accounting and finance literature seems to focus exclusively on the economic aspects of leasing strategies. This paper uses a different lens to make a call for a rethink about leasing with environmental considerations. It is expected that the findings and suggestions in this study will facilitate the adoption and diffusion of the “closed loop” lease and service mode in the business world for the benefit of the environment in the future. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting and Information Management Emerald Publishing

Lease and service for product life‐cycle management: an accounting perspective

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1834-7649
DOI
10.1108/18347641111169232
Publisher site
See Article on Publisher Site

Abstract

Purpose – Previous research in lease finance and evaluation has given little consideration to environmental factors. The purpose of this paper is to add to the literature by analysing how leasing provides a more attractive option than selling and extended producer responsibility (EPR) in helping to close product life‐cycle loops, extend the useful life of products, and increase environmental benefits. Design/methodology/approach – This paper revisits the accounting concepts of asset depreciation, residual value and cost of leasing and proposes methods to incorporate these concepts into the “closed loop” lease and service mode for product life‐cycle management. Findings – For business, the “closed loop” lease and service mode changes asset values through the extension of the asset's useful life and in particular, the increase of the residual value of the product (i.e. recoverable value to the producer/lessor). Such changes reduce the cost of leasing to the advantage of both lessor and lessee. However, the argument about a “win‐win” monetary and environmental outcome being associated with leasing presents several challenges for current accounting standards in terms of recognition of lease and lease revenue, recognition of intangible assets and internalisation of environmental costs and impacts associated with the leasing process. Originality/value – To date, accounting and finance literature seems to focus exclusively on the economic aspects of leasing strategies. This paper uses a different lens to make a call for a rethink about leasing with environmental considerations. It is expected that the findings and suggestions in this study will facilitate the adoption and diffusion of the “closed loop” lease and service mode in the business world for the benefit of the environment in the future.

Journal

International Journal of Accounting and Information ManagementEmerald Publishing

Published: Sep 20, 2011

Keywords: Leasing; Selling; Finance; Closed loop; Product life‐cycle management; Residual value; Accounting standards; Asset depreciation

References

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