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on page 125, it is mentioned under “Indications of Financial Lease”
“The lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.”
“The lesse bears losses arising from the calling the lease.”
Please elaborate the above two either through examples or in much simpler words.Thanks in advance.
Hi,
If the lessee rents the asset for say $10,000 over 5 years and then there is an option to continue the rent for an additional 3 years (secondary period) for $100 (lower than the market rental), then we have a finance lease as in substance we have ownership.
If the lease is stopped/terminated (called) during the lease period and the losses from the termination are paid for (born by) the lessee then there is a finance lease.
Thanks
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