Finance Lease

Finance Lease

1. Is it really

   • Major Criteria
   • Other Criteria
   • If cancelable
   • LESSEE
     • Minimum Lease payments
       • BPO
         • loss
       • Guaranteed Residual V.
         • loss
         • None
     • Depreciation
       • Life of asset
         • BPO
         • Guaranteed RV
       • Shorter of life asset VS lease term
         • Otherwise
         • 75 major life
         • 90 pmv close to fv
     • Payment
       • Principal
       • Interest
     • Purchase
       • CA of Asset + cash - lease liab = cost of purchased asset
   • LESSOR
     • Direct Financing
       • annual rental given
         • Cost of machine = net investment / cost of machine plus initial direct costs = PV of gross rentals plus PV of residual value
           • get unearned interest income
       • NOT given
         • is there a transfer of title
           • yes
             • ignore residual value
               • get annual rent
               • get unearned interest income
           • No
             • use GUARANTEED residual value
               • get annual rent
             • still use UNguaranteed residual value OR guaranteed
               • get unearned interest income
     • Manufacturer's lease