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Answer Posted / asad
A. Operating Lease
An operating lease is basically a lease which is not a
finance lease
B. Capital Lease
A capital lease is a rental agreement in form, but the
substance of the transaction is an asset purchase. With
capital leases, the lessee records and asset and related
liability rather than rental expense. The lessee also record
depreciation on the asset. If a lease agreement meets any
one of the following criteria, it is considered to be a
capital lease:
1. The lease term is equal to 75% or more of the life of
the asset.
2. The present value of the minimum lease payments is
equal to at least 90% of the cost of the asset.
3. The lease transfers ownership of the asset to the
lessee at the end.
4. The lease contains a bargain purchase option (the
option price is so low we know that the lessee will exercise
the option to purchase the asset.
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