bargain purchase option

Bargain-Purchase-Price Option

A lease in which the lessee has the option to buy the underlying asset at less than its fair market value at the end of the lease. For example, one may enter into an agreement to rent a house for five years with the option to purchase the house at the end of five years; the price is determined at the beginning of the lease, but must be substantially less than the market value of the house. If the lease is non-cancelable, the Financial Account Standards Board requires that it be considered a capital lease. See also: Rent-to-own.

bargain purchase option

A right granted to a lessee, typically under a personal property lease such as for office equipment,but it could be a real property lease.The right,called the option,gives the lessee the ability to buy the property, at the end of the lease term, for a price substantially less than fair market value.The inclusion of a bargain purchase option in a lease contract is an indication that the contract is really a disguised seller-financing arrangement.As a result,“rent”payments previously written off in their entirety may be disallowed by the IRS because some portion of the rent was really payment of principal on a loan.In addition,under Sarbanes-Oxley,public companies may have to post such arrangements as liabilities on the company's balance sheets,contrary to prior custom and practices.

Mentioned in ?
References in periodicals archive ?
A bargain purchase option is a "provision allowing the lessee, at his option, to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable that exercise of the option appears, at the inception of the lease, to be reasonably assured.
1) bargain purchase option 3 Is the lease term [greater Lease term =5 years No than or equal to]75% Estimated economic life = of the estimated economic 10 years life of the leased property?
At the end of the lease term, the lease calls for a bargain purchase option by the lessee for a nominal amount.
Under the second option, while there is a strong argument that HF's payments are no more than a future ordinary income stream already determined under the lease contract, the bargain purchase option on the equipment inevitably guarantees the lessee will take title to the property at the end of the lease term.
the criteria for determining whether a lease should be capitalized are: (1) the transfer of ownership at the end of the lease term, (2) a bargain purchase option that can be exercised by the lessee, (3) a lease term that is equal to or greater than 75 percent of the estimated useful life of the leased asset, or (4) the present value of the lease payments being equal to or greater than 90 percent of the fair market value of the leased asset
2] Capital Lease-typically, called a finance lease, this type is an asset-and-liability issue and the lease typically has a bargain purchase option of $1.
which Tech Squared controls through a bargain purchase option to acquire 600,000 shares or approximately 37 percent of Digital River common stock as of Sept.
The lease must not contain a bargain purchase option.
This month's column continues with an explanation of a capital lease that includes a bargain purchase option.
The value of the bargain purchase option is included in the total.
The bargain purchase option allows the lessee to purchase the asset at a reduced price at the end of the lease.
There is much more to be discussed including financial statement reporting and disclosures, and we have not yet considered bargain purchase options, residual value or sale-leaseback arrangements.