Accounting For Lease Purchase Option
Description
How to fill out North Carolina Lease Purchase Agreements Package?
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FAQ
If the company exercises their option to purchase the asset at the end of the lease term, the lease asset and lease liability are extinguished, and the fixed asset is recorded on the company's balance sheet as a purchased fixed asset.
If a lease has a bargain purchase option, the lessee must record the asset as a capital lease in an amount equal to the present value of all minimum lease payments over the lease term.
Lease purchase options offer companies the flexibility to convert leases into fixed assets by exercising their right to purchase the leased asset. Understanding the intricacies of lease purchase options and their accounting implications under ASC 842 is crucial for accurate financial reporting.
Under ASC 842, leases containing a purchase option are accounted for as finance leases if the lease contains a purchase option the lessee is reasonably certain to exercise. Additionally, a title transfer at the end of a lease, designates the lease as finance.