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capital lease


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In the USA, a lease that does not legally constitute a purchase although the leased asset should be recorded as an asset on the lessee's books if any one of the following four criteria is met: the lease transfers ownership of the property to the lessee at the end of the lease term; a bargain purchase option exists; i.e. an option exists enabling the lessee to buy the leased property at the end of the lease for a minimal amount or to renew the lease for a nominal rental (a bargain renewal option); the lease term is 75% or more of the life of the property; the present value of minimum lease payments equals or exceeds 90% of the fair value of the property. See also finance lease.

the lease transfers ownership of the property to the lessee at the end of the lease term;

a bargain purchase option exists; i.e. an option exists enabling the lessee to buy the leased property at the end of the lease for a minimal amount or to renew the lease for a nominal rental (a bargain renewal option);

the lease term is 75% or more of the life of the property;

the present value of minimum lease payments equals or exceeds 90% of the fair value of the property.

Subjects: Financial Institutions and Services.


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