Treatment in The United States
Under US accounting standards, a finance (capital) lease is a lease which meets at least one of the following criteria:
- ownership of the asset is transferred to the lessee at the end of the lease term;
- the lease contains a bargain purchase option to buy the equipment at less than fair market value;
- the lease term equals or exceeds 75% of the asset's estimated useful life;
- the present value of the lease payments equals or exceeds 90% of the total original cost of the equipment.
Following the GAAP accounting point of view, such a lease is classified as essentially equivalent to a purchase by the lessee and is capitalized on the lessee's balance sheet. See Statement of Financial Accounting Standards No. 13 (FAS 13) for more details of classification and accounting.
Read more about this topic: Finance Lease
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