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, net present value of lease payments, economic life, and whether the asset is specialized.
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What are the conditions for a lease to be considered valid?
There are four key conditions that must be present in order for an arrangement to qualify as a valid lease. The conditions relate to control of the asset, how the asset will be used, whether the are any monetary benefits, and if the lessor has the right to substitute.