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Operating Lease is a lease which is treated as a true lease (as opposed to a
loan) for book accounting purposes. As defined in FASB 13, an operating lease
must have all of the following characteristics:
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1. Lease term is less than 75% of estimated economic life of the
equipment
2. Present value of minimum lease payments is less than 90% of the equipment's
fair market value
3. Lease cannot contain a bargain purchase option (i.e., less than the fair
market value)
4. Ownership is retained by the lessor during and after the lease term
An operating lease is accounted for by the lessee without showing an asset (for
the equipment) or a liability (for the lease payment obligations) on his
balance sheet. Periodic payments are accounted for by the lessee as operating
expenses of the period.
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finance lease | operating
lease | structured lease
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