Related Party Lease Agreement

[MichaelB-AMIC]

Good afternoon,

We are considering changing the structure of a current intercompany arrangement relating to our fleet of company vehicles. The new arrangement would be a lease agreement between related parties, with the lease value approximating market value. Per our review of SSAP 22, the lease income should be classified as net investment income, but the cars (equipment) being leased should not be reclassified as an invested asset. We wanted to verify this is correct, since it appears our investment yield ratio?s would be thrown off as the actual asset earning the rental income is not included as an invested asset on the lessor?s financial statement.

Greatly appreciate any input on this matter.

[Lisa]

Michael,
I believe the accounting guidance you are quoting in your question is paragraph 28 in SSAP 22R Leases. I believe you should also review SSAP 25, Related Parties, as you have referred to the arrangement as a related party lease. SSAP 25 states, ?This statement shall be followed for all related party transactions, even if the transaction is also governed by other statutory accounting principles.? As a result, if there is guidance is SSAP 25 that fits your situation, you should follow SSAP 25 not SSAP 22R.
Thanks
Lisa Mullen

[MichaelB-AMIC]

Thank you Lisa