The Leasing Circus 🎪: Featuring Capital Lease 🎭
Ah, the world of leases! It’s like a carnival filled with fun, excitement, and bursting balloons of complex financial jargon. Today, let’s dive into the eye-watering amusement park called Capital Leases! 🎢💸
Lease or Love? Ownership Transfer ❤️👛
Like a love story with a happy ending, a capital lease ’transfers ownership’ of the asset to the lessee by the end of the lease term. Imagine leasing a fluffy unicorn 🦄 and ending up owning it! Who wouldn’t want that?
Bargain Shopping Spree 🛍️💸🎉
Picture this: walking into a store and finding a treasure chest marked at almost nothing! A bargain purchase option allows the lessee to buy the leased property at the end of the lease term for a minimal amount. Bargain renewal options are like finding a jackpot deal on Groupon – renew that lease for a nominal fee. Oh, the joy! 🎁
Time Matters: 75% Lease Life ⏳⌛
Question: What do leases and fine cheese have in common? Answer: Both can improve with time (up to a point)! If the lease term is 75% or more of the asset’s life, it’s a capital lease. Think longer lease terms and aged cheese – blissful heaven. 🧀✨
The 90% Rule: Present Value Drama 🎭💔
In the grand show of finance, drama is a regular guest. Present value of minimum lease payments must equal or exceed 90% of the fair value of the property. It’s like dating – if you invest 90% of your efforts into a relationship, it’s serious business!
graph LR
A[Capital Lease] --> B[Ownership Transfer at End]
A --> C[Bargain Purchase Option]
A --> D[75% of Life of Property]
A --> E[90% Present Value]
Capital Lease Cheat Sheet 📑: Everything Summarized
- Ownership Transfer: Bye-bye lease, hello asset! 👋
- Bargain Purchase Option: Scoops for cheap deals 🛍️
- Lease Term ≥ 75% Life: Lease till nostalgia hits ⏳
- 90% Present Value: Hard-hitting numbers ♥️
F.A.Q: Fun Assurance Quotient 🤡®
Q: Is this like renting a car sometimes and owning it? A: Absolutely! Except your “car” can be office buildings, machinery, or even that comfy chair you love. 🚗 ➔ 🏢
Q: Is Capital Lease a fan of drama? A: You bet! When your lease payments could almost buy the whole thing outright, the capital lease steps in, heart-throbbing! 🎭
Quizzes: Test Your Lease-y Knowledge 📝💡
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What signifies a capital lease at the end of the lease term?
- a) Transfer of sentimental value
- b) Transfer of ownership
- c) Transfer of minimum lease payments
- d) Transfer of lease payment value
Correct Answer: b. Explanation: A capital lease transfers ownership of the property to the lessee at the end of the lease term.
-
A capital lease needs the lease term to be what percent of the asset’s life?
- a) 500%
- b) 15%
- c) 100%
- d) 75%
Correct Answer: d. Explanation: One of the conditions for a capital lease is that the lease term must be 75% or more of the asset’s life.
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What type of deal does a bargain purchase option provide under a capital lease?
- a) No interest at all
- b) Too expensive
- c) Minimal amount
- d) Forever lease
Correct Answer: c. Explanation: A bargain purchase option allows the lessee to purchase the asset at the end of the lease for a minimal amount.
-
The present value of minimum lease payments must equal to or greater than what percent of fair value under a capital lease?
- a) 50%
- b) 75%
- c) 90%
- d) 25%
Correct Answer: c. Explanation: For a lease to be recognized as a capital lease, the present value of minimum lease payments should equal or exceed 90% of the asset’s fair value.
-
Is a capital lease the same as a finance lease?
- a) No way
- b) Yes
- c) Sometimes
- d) Depends on the lease company’s pet preference
Correct Answer: b. Explanation: In accounting terms, Capital Lease is essentially synonymous with a Finance Lease.
-
Does a capital lease affect the lessee’s balance sheet?
- a) Nope
- b) Yes, significantly
- c) Just a little
- d) Who cares?
Correct Answer: b. Explanation: Since the leased asset is recorded as an asset and the associated obligation is recorded as a liability on the lessee’s balance sheet.
-
If a lease does not transfer ownership, does it qualify as a capital lease?
- a) Never
- b) Yes, if it meets other criteria
- c) Random luck
- d) By lease magic
Correct Answer: b. Explanation: Ownership transfer is just one of the criteria. If it meets any one of the other conditions (bargain purchase option, lease term longevity or 90% of fair value rule), it qualifies as a capital lease.
-
Can a bargain renewal option also make a lease a capital lease?
- a) Nope, not at all
- b) Definitely
- c) Depends on phase of the moon
- d) Seasonal offers only
Correct Answer: b. Explanation: Having a bargain renewal option, which allows renewing the lease at a nominal fee, qualifies the lease as a capital lease.
Related Terms
[finance lease], [operating lease], [present value]
