Transfer of Ownership Test Definition

Definition

The word transport of ownership evaluation identifies to among four capitalization criteria utilized by lessees to consideration fully for a rented land. The transport of ownership evaluation only says: If legal name of this rented property is mechanically moved to the lessee as a portion of this contract, after which the agreement ought to be treated as a capital lease.

Explanation

Companies often-times come contractual arrangements which have the best to make use of precise property. Since the stipulations of those contracts will probably be different, the Financial Accounting Standards Board issued FAS No. 1-3 – Accounting for Leases, that summarizes the criteria used to find out whether the agreement ought to be treated like being a capital versus operating rental.

The move of ownership evaluation is considered minimal contentious and easiest to execute in training. If legal title for the rented property goes to the lessee during or by the ending of the contract’s duration, and each one the advantages and risks of ownership transport, then the agreement should be treated as a capital lease.

There really are a total of four capitalization criteria utilized by lessees to find out whether the home needs to be treated as a capital lease. In the event the agreement fails the four evaluations, then a arrangement ought to be treated as a capital lease. One other criteria contain: a more bargain-purchase option evaluation, an financial life evaluation, and a retrieval of investment evaluation.