Lease Classification
Answer each question from the signed lease agreement. The result shows which lease schedule to use.
Lease Terms
From the signed lease agreement.
Count the base term plus any renewal periods the church or ministry is reasonably certain to take. A lease running month to month after its term ended is short-term from that point.
Enter a whole number of months.
Use the full payment on the invoice, maintenance and per-copy charges included. Generally, we do not separate service costs from the lease payment (ASC 842-10-15-37).
Enter the payment in dollars.
Use the rate stated in the lease. If none is stated, use the U.S. Treasury rate on the commencement date for the maturity closest to the lease term (risk-free rate election, ASC 842-20-30-3). Treasury par yield curve rates
Enter a rate between 0 and 30.
Finance Lease Tests
One yes makes it a finance lease. Five no's make it an operating lease.
The term is 12 months or less. Only test 2 applies.
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Does ownership transfer to the church or ministry at the end of the lease?Read the end-of-term clause. Yes if title passes to the church or ministry when the last payment is made.
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Is there a purchase option the church or ministry is reasonably certain to use?A $1 buyout, a fixed low price, or any price far below what the asset will be worth is a yes. A buyout at fair market value is almost always a no.
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Does the lease cover most of the asset's useful life?Compares the lease term to how long the asset can be used, by anyone, from the start of the lease. Copiers and computers about 5 years, vehicles 5 to 8, buildings 30 to 40. Use the manufacturer's life or our fixed asset lives, and note the source. 75% or more is a yes (ASC 842-10-55-2).
The lease term divided by the asset's useful life. 75% or more is a yes.
Enter the useful life in years.
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Do the payments add up to almost all of what the asset is worth?Compares the present value of the payments to the asset's cash price: what it would cost to buy outright at the start of the lease, from the vendor quote, the invoice or the lease. Note the source. The present value is the same as the Initial ROU asset / lease liability line on the lease schedule. 90% or more is a yes (ASC 842-10-55-2). If the lease includes a residual value guarantee, raise it with a manager.
The present value of the payments divided by the cash price. 90% or more is a yes.
Enter the cash price in dollars.
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Is the asset so specialized that the lessor has no other use for it?Built or changed only for this church or ministry, so the lessor could not lease or sell it to anyone else at the end. Rare.
Templates
Hand-keyed cells are shaded blue. Every other cell is a formula. The headers on the Full Schedule and Rate Support tabs fill from the first tab.