A bargain purchase option is a provision in a lease agreement that allows the lessee to purchase the leased asset at the end of the lease term for a price significantly lower than the expected fair market value.
A bargain renewal option in a lease agreement gives the lessee the right to extend the lease term at a rate favorable enough that's considerably below market value.
A Capital Lease, in the USA, is a lease that does not legally constitute a purchase but is recorded as an asset on the lessee's books under certain conditions.
Understanding the multifaceted term 'capitalize' and the concept of capitalization, especially within various business and financial contexts. This includes asset valuation, financing capital expenditures, accounting procedures, and making economically advantageous decisions.
A Direct Financing Lease is a method used by lessors in capital leases where the lessor purchases an asset specifically for rental purposes. The lease payments must be collectable, and there should be no significant uncertainties about any unreimbursable future costs.
Minimum lease payments refer to the regular rental payments excluding executory costs, which are made by the lessee to the lessor in a capital lease. These payments are reported as an asset and a liability at the discounted value of future minimum lease payments by the lessee.
Off-balance-sheet financing refers to financial arrangements that do not appear on a company's balance sheet, thus not affecting its borrowing capacity as measured by financial ratios. It is commonly seen in operating leases rather than capital leases. GAAP requires disclosure of such financing in financial statements regarding credit, market, and liquidity risk.
A lease in which the lessor meets the criteria for a capital lease and additionally satisfies criteria regarding collectibility and predictability of costs.
