Leases Flashcards
What is the difference between a Sales-Type Lease and a Direct Financing Lease?
In a Sales-Type Lease there will profit and results in 2 occurrences. The FV of the leased asset is greater than the BV of the leased asset OR the selling price of the leased asset is greater than the amount initially paid for by the lessor which results in “Gross Profit”.
In a Direct Financing lese there is NO gross profit. The FV of the leased asset does NOT exceed the BV of the leased asset.
What is does it mean to have residual value in a lease?
Residual value is the estimated fair value of the leased asset at the end of the lease, and can be either guaranteed or unguaranteed by the lessee. Guaranteed residual values are usually included in the minimum lease payments.
