Changes

Leases usually fall into one of two categories – operating or financial.  An operating lease is such that it does not transfer significant risks and benefits of ownership to the lessee.  A financial or capital lease is really a loan in disguise.  US accounting rules require companies to account for a leased asset as if it were a purchase with a corresponding debt, if one of the following criteria are met:

Leases usually fall into one of two categories – operating or financial.  An operating lease is such that it does not transfer significant risks and benefits of ownership to the lessee.  A financial or capital lease is really a loan in disguise.  US accounting rules require companies to account for a leased asset as if it were a purchase with a corresponding debt, if one of the following criteria are met:

1. The lease transfers ownership of the property at the end of the term to the lessee.

#The lease transfers ownership of the property at the end of the term to the lessee.

2. The lease contains a bargain purchase option.

#The lease contains a bargain purchase option.

3. The non-cancellable term of the lease is more than 75% of the estimated life of the property

#The non-cancellable term of the lease is more than 75% of the estimated life of the property

4. The Net Present Value of lease payments are equal to 90% of the fair value of the property.

#The Net Present Value of lease payments are equal to 90% of the fair value of the property.

[[Category:Business]]

[[Category:Business]]

[[Category:Finance]]

[[Category:Finance]]