Under ASPE 3065, a lease is classified as a capital lease if any of the following criteria is met: ownership transfer at the end of the lease (including a bargain purchase option), the lease term is 75% or greater of the asset's useful life, or the present value of the minimum lease payments is 90% or greater of the asset's fair value.

Under ASPE 3065, a lease is classified as a capital lease if any of the following criteria is met: ownership transfer at the end of the lease (including a bargain purchase option), the lease term is 75% or greater of the asset's useful life, or the present value of the minimum lease payments is 90% or greater of the asset's fair value.

• A. Ownership transfer is guaranteed at the end of the lease
• B. The lease term is 50% of the asset's useful life
• C. The PV of minimum lease payments is 85% of fair value
• D. The PV of minimum lease payments is 90% or greater of fair value

Answer: (D)

Under ASPE 3065, a lease is a capital lease when the lessee effectively obtains ownership benefits and risks of the asset. This can happen if ownership transfers at the end (including a bargain purchase option), if the lease term is 75% or more of the asset’s useful life, or if the present value of the minimum lease payments is at least 90% of the asset’s fair value. The key idea is that one of these criteria shows the lease is, in substance, a financed purchase rather than a simple rental. The best answer is the one stating that the present value of the minimum lease payments is 90% or greater of the asset’s fair value. This exact threshold directly satisfies one of the capital-lease criteria and signals that the lease transfers substantial economic ownership risks and rewards to the lessee. The other options don’t meet the criteria: a lease term of 50% of the asset’s useful life is below the 75% threshold; a present value of 85% of fair value is below the 90% threshold; and while ownership transfer at the end is a capital-lease trigger, the explicit 90% PV condition is the clearest, unambiguous criterion shown here.

Under ASPE 3065, a lease is a capital lease when the lessee effectively obtains ownership benefits and risks of the asset. This can happen if ownership transfers at the end (including a bargain purchase option), if the lease term is 75% or more of the asset’s useful life, or if the present value of the minimum lease payments is at least 90% of the asset’s fair value. The key idea is that one of these criteria shows the lease is, in substance, a financed purchase rather than a simple rental.

The best answer is the one stating that the present value of the minimum lease payments is 90% or greater of the asset’s fair value. This exact threshold directly satisfies one of the capital-lease criteria and signals that the lease transfers substantial economic ownership risks and rewards to the lessee.

The other options don’t meet the criteria: a lease term of 50% of the asset’s useful life is below the 75% threshold; a present value of 85% of fair value is below the 90% threshold; and while ownership transfer at the end is a capital-lease trigger, the explicit 90% PV condition is the clearest, unambiguous criterion shown here.