Ch.8 Leases - Lessor POV

Question 1

Classification criteria

Answer 1

transfers substantially all of the risks and rewards of ownership to the lessee.

1. Title transfers to the lessee by the end of the lease term - aka purchase of asset
2. A BPO exists, and at the date the lease begins, it is reasonably certain that the lessee will exercise it- priced below fair market value
3. The lease term is of such a duration that the lessee will receive substantially all the economic benefits expected to be derived from the use of the leased property over its lifespan.
4. The present value (PV) of the minimum lease payments amounts to substantially all of the fair value (FV) of the asset: PMT=fixed+variable payments, interest=said in the terms, FV=BPO or any guranteed residual value, if there is none, NIL if PV=fair market value then met
5. The asset is specialized in nature and only the lessee can use it without major modifications.