Capital lease

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.

See also

• ASC 842
• Capital
• Fair value
• Finance lease
• IAS 7
• Lease
• Lessee
• Lessor
• Nominal
• Operating lease
• Present value
• Tax credit
• US GAAP
• Useful economic life