Capital lease: Difference between revisions
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A capital lease usually involves the lessee paying - over the life of the lease - the full cost of the asset plus a return on the finance effectively provided by the lessor. | 1. ''Leasing.'' | ||
A capital lease usually involves the lessee paying - over the life of the lease - the full cost of the leased asset plus a return on the finance effectively provided by the lessor. | |||
The lessee effectively retains substantially all the risks and rewards of ownership. | The lessee effectively retains substantially all the risks and rewards of ownership. | ||
Also known as a ''finance lease''. | |||
2. ''US GAAP - lease accounting - ASC 842.'' | |||
Under US GAAP a capital lease is a lease that meets any one (or more) of the following 4 criteria: | |||
:(1) Ownership transferred to the lessee by, or shortly after, the end of the lease term. For example, for a nominal payment. | |||
:(2) The lease contains a bargain purchase option. | |||
:(3) The lease term is equal to 75% or more of the total estimated useful economic life of the asset. | |||
:(4) The present value of the minimum lease payments exceeds 90% of the fair value of the asset, taking account of the lessor's tax credits, if any. | |||
== See also == | == See also == | ||
* [[ASC 842]] | |||
* [[Capital ]] | |||
* [[Fair value]] | |||
* [[Finance lease]] | * [[Finance lease]] | ||
* [[IAS 7]] | |||
* [[Lease]] | |||
* [[Lessee]] | |||
* [[Lessor]] | |||
* [[Nominal]] | |||
* [[Operating lease]] | * [[Operating lease]] | ||
* [[Present value]] | |||
* [[Tax credit]] | |||
* [[US GAAP]] | |||
* [[Useful economic life]] | |||
[[Category:Accounting,_tax_and_regulation]] | |||
[[Category:The_business_context]] | |||
[[Category:Corporate_finance]] | |||
[[Category:Investment]] | |||
[[Category:Long_term_funding]] | |||
Latest revision as of 20:42, 12 February 2023
1. Leasing.
A capital lease usually involves the lessee paying - over the life of the lease - the full cost of the leased asset plus a return on the finance effectively provided by the lessor.
The lessee effectively retains substantially all the risks and rewards of ownership.
Also known as a finance lease.
2. US GAAP - lease accounting - ASC 842.
Under US GAAP a capital lease is a lease that meets any one (or more) of the following 4 criteria:
- (1) Ownership transferred to the lessee by, or shortly after, the end of the lease term. For example, for a nominal payment.
- (2) The lease contains a bargain purchase option.
- (3) The lease term is equal to 75% or more of the total estimated useful economic life of the asset.
- (4) The present value of the minimum lease payments exceeds 90% of the fair value of the asset, taking account of the lessor's tax credits, if any.
