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ASPE 3065: Capital Lease Recognition Criteria related to FMV of asset

Under ASPE, we are trying to find out if the building lease falls under capital or operating lease. If I have a situation where all other criteria are not met but the one criteria where the lease is considered a capital lease if the present value of minimum lease payments is equal to substantially all (usually 90 percent or more) of the fair value of the leased property. If the PV of minimum lease payment comes to be at 89% of the FMV of the leased asset, does it means that the criteria is not met. OR Would it be possible to say that "may be it’s up to the company's discretion how to treat…" in which case may be we have to consider what the owner would like. One can argue that 89% is substantial. My question is how strict ASPE guidance is when it comes to usually 90% or more? Thanks for your input.

Answers

Jeff McGlaughlin
Title: Corporate Controller
Company: Withheld
(Corporate Controller, Withheld) |

The 90% threshold is a true "bright-line" rule, there is no wiggle room afforded in the accounting guidance. 89% means that the criteria is not set. 90.00% means that the criteria is met.

That being said, there is a significant amount of wiggle room within the definition of "fair value", particularly downward. If you can legitimately lower your "fair value" estimate ever so slightly, then your calculation of 89% can very easily jump up above 90%.

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