If the present value of the lease payments is at least 90% of the fair market value at the start of the lease, this would cause a lease to be declared a capital lease for accounting purposes.

Question

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Under previous accounting standards, one of the criteria for a lease to be classified as a capital lease (now referred to as a finance lease under ASC 842 in the U.S. and IFRS 16 internationally) was if the present value of the lease payments was at least 90% of the fair market value of the leased asset at the start of the lease.

If the Present Value of the Lease Payments Is at Least