Leases

● Finance Lease
○ Indicators:
■ Transfer of Ownership
■ Purchase Option
● Exercisable - lessee has an option to obtain the property at a
substantially lower price than FV
■ 75% Rule
● Lease Term is at least 75% than the remaining useful life
■ 90% Rule
● PV of Lease Payments is at least 90% of the Fair Value at the
inception of (ewan ambilis magsalita ni sir)
● Lease Payments
○ Fixed Rental Payments (PV OA or PV AD)
○ Variable Rental Payments (PV OA or PV AD)
○ Purchase Option that is Exercisable (PV of 1)
○ Guaranteed Residual Value (PV of 1)
○ Penalties → termination of lease (PV of 1)
○ PV OA Formula:
■ (1+%); divide; press equals n times; minus 1;
divide by %
○ PV AD Formula:
■ (1+%); divide; press equals n-1 times; minus 1;
divide by %; minus 1
○ PV of 1:
■ (1+%); divide; press equals n times
● PV of Lease Payments
○ %
■ Implicit %
■ Incremental Borrowing %
● Only used in the absence of implicit rate
● Operating Lease
○ Residual definition