Lease Terms
Executory costs are excluded from present value of the minimum lease payments (PVMLP)I
- Insurance, interest, taxes, etc.
- If lessor is responsible for these a portion of the rental payment must be allocated and removed from the calculation of the PVMLP.
Discount rate
- Normally the lessee’s incremental borrowing rate at the lease inception.
- Lessee
- Computes the PVMLP using this rate unless the lessor’s rate (implicit in the lease) is known to the lessee and is less than the lessee’s incremetal rate.