What is Finance lease?

A lease relationship in which property is provided under a contract for possession and use for a term of more than twelve months, where the contract must meet one of the following four conditions (NAS No. 6, paragraph 6). Leasing is a special type of finance lease (NAS No. 6, paragraph 8). The lessee reports such an item on its own balance sheet in account 0310, and the liability in accounts 6950 and 7910 (NAS No. 21, paragraphs 33–35).

• When the contract ends, the item passes into the lessee's ownership
• The contract term exceeds 80 percent of the item's useful life, or the residual value at the end of the contract is less than 20 percent of the initial value
• The lessee has the right to buy the item at the end of the term at a price well below market value, and at the start of the lease there is certainty that this will happen
• The discounted present value of the lease payments exceeds 90 percent of the item's current value at the time it is provided