Capital lease

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Revision as of 20:42, 12 February 2023 by imported>Doug Williamson (Add definition - source - FASB glossary - https://asc.fasb.org/1943274/2147481155/840-10-25-1)
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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