The decision regarding the equipment composition - Individual Essay

The decision regarding the equipment composition - Individual assignment - Essay ExampleIn 1976 the FASB issued SFAS No. 13, Accounting for Leases. This statement is considered a part of the generally accepting accounting principles. During the past 35 years after the creation of SFAS No. 13 the FASB has issued a total of six statements, six interpretations, and 11 technical bulletins on take ons. When working with accounting for postulates there are two different perspective or elements. The two elements are accounting for lessee and accounting for the lessor. The lessor is the original owner of the asset who rents its use to the lessee in diversity for a recurrent installment fee during the duration of the affiance contract. There are two uncreated classifications of leases which are capital and operating leases. One of the most important aspects for SFAS No. 13 is that it establishes the four criteria inevitable to classify a lease as a capital instead of an operating lease . If a lease fails to meet any of the four criteria established on SFAS No. 13 it fail to be sort out as a capital lease. The difference between a capital lease and an operating lease is that a capital lease considers the property chartered an asset in the accounting books of the company because at the end of the lease transfer of will power occurs. The four criteria to classify a lease as a capital lease are1. The lease transfers ownership of the property to the lessee2.The lease contains a bargain grease ones palms option3.The lease term is equal to 75% or more of the economic life of the hired property 4. The present value of the lease payments equals or exceeds 90% of the equitable market value of the leased property (Weygandt & Kimmel & Kieso, 2003). The two primary classifications of capital or operating lease mentioned are from the perspective of the lessee. attachment No. 5, Determining Lessors Type of Lease FASB, shows the evaluation process that can be apply by a lessor to classify a lease (Lee, 2003, pg. 12). From the lessors perspective a capital lease can be classified as a sales display case lease, study financing lease, or a leveraged lease. Each of the three types of lessor lease classifications can be defined differently. A sales type lease occurs when the fair value of the lease is different than its carrying amount and real estate is involved and ownership of the property is transferred, or when real estate is not involved and lease meets all four criteria low SFAS No. 13 and two additional lease criteria which are listed below Collectibility of minimum lease payment is reasonably predictable No important uncertainties surround the amount of unreimbursable cost yet to be incurred by the lessor under the lease (Lee, 2003). The second lessor classification for a capital lease is direct financing lease. If the fair value and carrying amount of the lease are the same and the lease meets the two additional criteria mentioned in the r endering of a sales type lease then the lease is classified as a direct financing lease. The third type of classification is the leveraged lease. In a leveraged lease a long term creditor intervenes to provide non recourse