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Capital Lease Financial Glossary

What is it? A lease that meets at least one of the criteria outlined in paragraph 7 of FASB 13 and, therefore, must be treated essentially as a loan for book accounting purposes. The four criteria aretitle passes automatically by the end of the lease term lease contains a bargain purchase option (i.e., less than the fair market value) lease term is greater than 75% of estimated economic life of the equipment present value of lease payments is greater than 90% of the equipments fair market value A Capital Lease is treated by the lessee as both the borrowing of funds and the acquisition of an asset to be depreciated; thus the lease is recorded on the lessees balance sheet as an asset and corresponding liability (lease payable). Periodic lessee expenses consist of interest on the debt and depreciation of the asset.

Finance Term Definition Added By: Logan

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