What is the possibility of buying?

Purchase option is the provision included in the lease agreement, which provides the parties to the first choice for the purchase of an asset after completion of the lease. The price that the leasing party or tenant must pay at this point for the asset is significantly lower than the fair or market, the value of the asset. For this reason, it is possible to automatically qualify the possibility of purchasing a bargain contract as a capital rent. If this were the case, the leasing party must include the asset in its balance sheet as part of its financial reporting obligations. Ownership remains in the hands of the party known as the landlord. In some cases, however, the lessee actually has the opportunity to acquire the ownership of the asset as soon as the lease agreement has been met. If the price offered is significantly under the real market value asset, it is known as the possibility of purchase.

whenever the lessee is involved in the rent that has the opportunity to buy benefitsNo, there is a general assumption that this option will be applied and the ownership will transfer from the landlord to the tenant. After all, the lessee acquires the assets at a better price than others who did not participate in the lease agreement could hope to pay. There is a financial reality to this type of agreement that needs to be considered.

If the lease agreement has the possibility of purchasing a favorable purchase, it meets one of the four criteria that automatically provides it with the rental of capital before applying the possibility. Once the lease contract is considered to be the rental of capital, the lessee must include the asset as part of its balance sheet. In essence, the tenant becomes the owner of the lease together with all the financial advantages and disadvantages that you will attach to it by the landlord.

What does a tenant who participates in the possibility of purchasing a bargain purchase is that it must pay all taxes and insurance associated with the asset and take responsibility for its maintenance. In addition, it may be as a tax purposes to be requiredAnno only the interest part of the rental payment, although the lessee gains the advantage of depreciation of assets from its taxes. These rules are introduced to avoid the lessee to obtain funding that does not appear in his financial statements.