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A lease which is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13, an operating lease must have all of the following characteristics:

  • the lease transfers ownership of the property to the lessee by the end of the lease term;
  • the lease contains a bargain purchase option (i.e., a price which is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable);
  • the lease term is equal to 75% or more of the estimated economic life of the leased property; and
  • the present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90% of the fair value of the leased property.
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