1. An operating lease is rental of property between the lessee and lessor for a fee.
2. A capital lease is in which the lessee obtains significant property rights. A capital lease exists if any one of the following four criteria is met: (1) the lease transfer ownership of the property to the lessee at the end of the lease terms; (2) a bargain purchase option exists; (3) lease term is 75% or more of the life of the property; (4) the present valu...
In February 2016, the Financial Accounting Standards Board (FASB) updated the accounting treatment of Leases. Today, we will highlight some of the benefits and costs associated with new adoption of ASU No. 2016-02, Leases (Topic 842), as outlined by FASB.
The benefits of adopting the new standard are as follow:
It eliminates one of the largest source of off balance-sheet financing
It is the most reflective of financial position of lessee