- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 28. Non-current (Long-term) Liabilities
- Subject 7. Lease Classification
CFA Practice Question
A lease should be classified as a capital lease if the lease term is substantially equal to the life of the leased property. For the lease term, "substantial" is defined as ______.
A. 90% or more of the leased property's estimated economic life
B. 75% or more of the leased property's estimated economic life
C. 70% or more of the leased property's estimated economic life
Explanation: "Substantial" is defined by FASB as 75% or more of the leased property's estimated economic life.
User Contributed Comments 4
| User | Comment |
|---|---|
| andy4cfa | Do not mess up the "90%" criteria which is called: the PV of the lease payment is equal to or greater than 90% of the fair value of the leased asset. |
| z2274743 | - Lease term > 75% of useful economic life - PV of lease payments > 90% of fair value - Bargain purchase option - taking ownership at end of lease |
| achu | Good summary, z2274743 |
| nmech1984 | you rock it z2274743! |