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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Definitions of Terms

A provision allowing the lessee the option of purchasing the leased property for an amount, exclusive of lease payments, which is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable. Exercise of the option must appear reasonably assured at the inception of the lease. GAAP does not offer additional guidance defining “sufficiently lower,” in which many factors such as the time value of money, usage, and technological changes influence whether the option fulfills the criteria for a bargain.

A provision allowing the lessee the option to renew the lease agreement for a rental payment sufficiently lower than the expected fair rental of the property at the date the option becomes exercisable. Exercise of the option must appear reasonably assured at the inception of the lease.

Rentals that represent the increases or decreases in lease payments that result from changes in the factors on which the lease payments are based occurring subsequent to the inception of the lease. However, changes due to the pass‐through of increases in the construction or acquisition cost of the leased property or for increases in some measure of cost during the construction or preconstruction period are excluded from contingent rentals. Also, provisions that are dependent only upon the passage of time are excluded from contingent rentals. A lease payment that is based upon an existing index or rate, such as the consumer price index or ...

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