CAPITAL LEASE
A lease known to have the economic feature of asset proprietorship. A capital lease would be considered a bought asset for accounting reasons. An operating lease, on the contrary would be recognized as a true lease, or rental, for accounting reasons. The selection of lease categorization will have vital outcome on a company’s monetary statements. A lease will go into this classification if any of the following requirements are carried out:
- The current worth of lease payments is higher than 90% of the asset's market worth.
- The holder of lease obtains ownership at the end of the lease period.
- The lease holds a purchase agreement for less than market price.
- The life of the lease is 75% or higher of the assets useful life.
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