The lease transfers ownership of the property to the

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: at has any of the following elements: 1. The lease transfers ownership of the property to the lessee by the end of the lease term. 2. The lease contains an option to purchase the property at a “bargain price.” Such an option must be exercisable at a “fair market value.” 3. The lease term is equal to 75 percent or more of the estimated economic life of the property (exceptions exist for property leased toward the end of its usable economic life). 4. At the beginning of the lease, the present value of the lease payments is equal to 90 percent or more of the fair market value of the leased property. The emphasis in this chapter is on financial leases, because they result in inescapable long-term financial commitments by the firm. Leasing Arrangements Lessors use three primary techniques for obtaining assets to be leased. The method depends largely on the desires of the prospective lessee. direct lease A lease under which a lessor owns or acquires the assets that are leased to a given lessee. sale–leaseback arrangement A lease under which the lessee sells an asset for cash to a prospective lessor and then leases back the s...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online