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Subject Topic: Interest rate for minimum lease payment (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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2010rockcpa
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Joined: 10 Mar 2010
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Posts: 77
Posted: 21 May 2010 at 15:05 | IP Logged  

I am confused which rate to use.

Becker F5-13 said: The lessee uses the incremental borrowing rate, determined as the lower (lesser) of:

(1) Rate implicit in the lease (if known)

(2) Rate available in the market to the lessee (not prime)

Then the F5-14 example said

Compute the present value of the minimum lease payments, using the lessee’s incremental

borrowing rate, unless:

(1) The lessor's implicit rate is lower, and

(2) The lessee has knowledge of the lower rate.

Then F5-17 example said, 10%, lessor's rate, is used since it iws lower than the lessee's rate and is known.

I am confused. How all these stuff tie to each other?

Is this true? 

incremental int rate=lessee's rate

rate implicit in the lease=lessor's rate.

There is

Rate available in the market to the lessee (not prime) also??? 

 

 

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Averalis
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Joined: 07 May 2010
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Posts: 93
Posted: 21 May 2010 at 15:31 | IP Logged  

You'll be fine if you just remember to take the lesser of:

(1) Rate implicit in the lease (if known)

(2) Rate available in the market to the lessee (not prime)




lessee's incremental rate is the same thing as (2)
lessor's rate is the same as (1)


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