Capital Lease

Capital Lease

A lease considered to have the economic characteristics of asset ownership. A capital lease would be considered a purchased asset for accounting purposes. An operating lease, on the other hand, would be handled as a true lease, or rental, for accounting purposes. The choice of lease classification will have important results on a firm's financial statements. A lease falls into this category if any of the following requirements are met:

1. The life of the lease is 75% or greater of the assets useful life.

2. The lease contains a purchase agreement for less than market value.

3. The lessee gains ownership at the end of the lease period.

4. The present value of lease payments is greater than 90% of the asset's market value.

A capital lease is an example of accrual accounting's inclusion of economic events. Generally, companies have a choice of which type of lease they wish to use for accounting purposes, however, both types of leases provide specific advantages and disadvantages to financial statements. For example, companies wishing to show a higher return on asset ratios would choose an operating lease, as the balance sheet would not account for the item as an asset, thus reducing the denominator in the ratio.


Investment dictionary. . 2012.

Игры ⚽ Поможем решить контрольную работу

Look at other dictionaries:

  • capital lease — capital lease, capitalized lease See lease. capitalized lease Lease obligations that must be capitalized under GAAP; the unpaid future lease payments due under the terms of the lease must be shown as a liability on the firm s balance sheet. As a… …   Financial and business terms

  • capital lease — USA Functionally a financing transaction (an asset is acquired and a liability is incurred). A lease is a capital lease under GAAP if the characteristics of ownership passes from the lessor to the lessee or the lessee is compelled to purchase the …   Law dictionary

  • Capital lease — A lease obligation that has to be capitalized on the balance sheet. The New York Times Financial Glossary * * * capital lease UK US noun [C] ► FINANCE, PROPERTY a legal agreement that allows a person or organization to make regular payments for… …   Financial and business terms

  • capital lease — A *lease whose contractual terms and economic effects involve the transfer of the *risks and *rewards of a leased asset. Under most systems of *Generally Accepted Accounting Principles, a *lessee *capitalizes in its balance sheet an asset… …   Auditor's dictionary

  • capital lease — In the USA, a lease that does not legally constitute a purchase although the leased asset should be recorded as an asset on the lessee s books if any one of the following four criteria is met: • the lease transfers ownership of the property to… …   Accounting dictionary

  • capital lease — In the USA, a lease that does not legally constitute a purchase although the leased asset should be recorded as an asset on the lessee s books if any one of the following four criteria is met: • the lease transfers ownership of the property to… …   Big dictionary of business and management

  • capital lease — A contract that transfers ownership of property to the lessee at the end of the lease term. A contract for the lease of property which possesses the characteristics of a purchase …   Black's law dictionary

  • capital lease — A contract that transfers ownership of property to the lessee at the end of the lease term. A contract for the lease of property which possesses the characteristics of a purchase …   Black's law dictionary

  • capital expenditures — USA capital expenditures, Also known as capex. Expenses incurred in acquiring, repairing or improving physical assets (equipment, property, plants), including acquiring assets pursuant to a capital lease, restoring or adapting property to a new… …   Law dictionary

  • Lease Utilization — A financial ratio that measures how much a company uses leasing arrangements to acquire its fixed assets. Utilization ratios come in two types, which correspond with operating leases and capital leases respectively: operating lease utilization… …   Investment dictionary

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”