Capital Lease

Knowledge Center

   

Description of Capital Lease. Explanation.

Contents

  1. Summary
  2. Forum
  3. Best Practices
  4. Expert Tips
  5. Resources
  6. Print
 

Definition Capital Lease. Description.


A Capital Lease transfers (nearly) all of the risk and rewards of the leased property to the lessee. Therefore it is considered to have the economic characteristic of asset ownership


In accounting capital leases are recorded as a purchase/sale on the balance sheet as both an asset and a related liability.


The firm can claim depreciation each year on the asset and can also deduct the interest expense component of the lease payment each year. In general, capital leases recognize expenses sooner than equivalent operating leases.


Since firms prefer to keep leases off the books, and sometimes prefer to defer expenses, there is a strong incentive on the part of firms to report all leases as operating leases. Consequently, in the US the Financial Accounting Standards Board has ruled that a lease should be treated as an capital lease if it meets any one of the following four conditions:

  1. The lease life exceeds 75% of the life of the asset.

  2. There is a transfer of ownership to the lessee at the end of the lease term.

  3. There is an option to purchase the asset at a "bargain price" at the end of the lease term.

  4. The present value of the lease payments, discounted at an appropriate discount rate, exceeds 90% of the fair market value of the asset.


Capital Lease Forum
  Quotes on Capital Lease. Quotations
Hi, do you know of a remarkable, humorous quote by a famous person or a proverb related to capital lease?
Please enter a reaction to share it for other people to enjoy! Please use this template:
Author Name Year of Birth - Year of Death, short ...
     
 

Capital Lease Special Interest Group


Special Interest Group

 

Best Practices - Capital Lease Premium

Expert Tips - Capital Lease Premium

Resources - Capital Lease Premium
 

News

Capital Lease
     
 

Videos

Capital Lease
     
 

Presentations

Capital Lease
     
 

More

Capital Lease
     

Compare with: Operating Lease

Special Interest Group Leader

You here


 

Return to Management Hub: Decision-making & Valuation  |  Finance & Investing


More on Management  |  Return to Management Dictionary  | 

 

This ends our Capital Lease summary and forum.

About 12manage | Advertising | Link to us | Privacy | Terms of Service
Copyright 2016 12manage - The Executive Fast Track. V14.1 - Last updated: 28-9-2016. All names tm by their owners.