Monday, July 6, 2009

determining if the lease is capital or operating

The first thing that the lease must do is to determine if the lease is an operating lease or a capital lease. For the lease, there are four criteria (Mentioned Above) used to determine if the lease is capital lease or not.
If anyone of these four criteria is met, the lease is capital lease for the lessee. If none of them are met, then it is an operating lease.
When making this determination, start with the first criteria and then move to the second and so on. Once one of the criteria has been met, you can stop this process because only one has to be met in order for the lease to be a capital lease.
Again, if none of these four criteria are met, the lease is accounted for as an operating lease, if any of the four are met, it is a capital lease.
internal links:
1- this link about what's advantage of leasing ?
2- this link about The two type of leases
3- this link about lessee Accounting for capital leases
4- this link about Lessee accounting for operating leases
5- this link about the accounting criteria for capitalizing leases by the lessee

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