Lease and Direct Financing
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Compare and contrast sales type leases and direct financing.
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This solution provides a detailed comparison of sales type leases and direct financing.
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DEAR STUDENT,
Conditions to be followed for treating the lease as capital lease.
1. The lessee has the right to use the asset for the majority of the life of the asset.
2. There is a transfer of ownership at the end of the term.
3. The option is given to the lessee to purchase the asset at the bargain price,
4. The present values of lease payments discounted at the appropriate discount rate exceed 90% of the market value of the asset.
5. Once Financial lease is signed it is recognized both as asset and liability (for lease payments).The firm ...
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