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Capital Lease Definitions


Lease Classification

Definition

Capital Lease

CRS 24-30-201(l) defines a capital lease as defined in generally accepted accounting principles issued by the governmental accounting standards board that the controller prescribes for the State as specified in section 24-30-202(12

Fair Value of Leased Property

The price for which the property could be sold in an arm’s length transaction between unrelated parties. This price should reflect any volume or trade discounts that may be applicable. GASB Statement No. 62, paragraph 271.

Lease

A lease is an agreement conveying the right to use property, plant, and equipment (PP&E) for a stated period of time. GASB Statement No. 62, paragraph 211.

Lease Purchase Agreement

CRS 24-82-801(4) defines a lease purchase agreement to be a capital lease as defined in generally accepted accounting principles issued by the governmental accounting standards board that the controller prescribes for the State as specified in section 24-30-202(12). A lease purchase agreement has the same meaning as a capital lease, which is defined in generally accepted accounting principles

Lease Incremental Borrowing Rate

The rate that, at the inception of the lease, the lessee (State agency) would have incurred to borrow over a similar term the funds necessary to purchase the leased asset. GASB Statement No. 62, paragraph 271. In the absence of a recent borrowing of matching term upon which to base the lessee’s incremental borrowing rate, State agencies should use the State Treasurer’s pooled cash earnings rate, not the lessor’s rate.

Minimum Lease Payments

The payments that the lessee is obligated to make or can be required to make in connection with the leased property. GASB Statement No. 62, paragraph 271. Minimum lease payments include rent for the equipment, “executory costs” made to the lessor (e.g. maintenance, insurance, or taxes), the bargain purchase option (which allows the lessee to buy the asset at a predetermined price below fair value), guaranteed residual value (a type of insurance protecting the lessor against an unexpected decline in the value of the asset), and any penalties for failing to renew or extend the lease.

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