Is the implicit rate or incremental borrowing rate used for finance leases?
When you calculate the net present value of future minimum lease payments, the rule is that you will always use the implicit rate if it is available. The incremental borrowing rate (IBR) is only used the implicit rate is not available.
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What are the 5 criteria to check to see if a lease represents a finance or operating lease?
Under U.S. GAAP, there is five key criteria that you must assess to determine whether the lessee records the lease as a finance or operating lease. If the lease meets any of the criteria, then it must be recorded as a finance lease. The five criteria relates to a bargain purchase option, transfer of ownership, […]