Minimum Lease Payments

AAA

DEFINITION of 'Minimum Lease Payments'

The lowest amount that a lessee can expect to make on a lease over its lifetime. Accountants calculate minimum lease payments in order to assign a present value to a lease. The method of calculating minimum lease payments is laid out in the Statement of Financial Accounting Standards No. 13 (FAS: 13), which was published by the Financial Accounting Standards Board in 1980.

INVESTOPEDIA EXPLAINS 'Minimum Lease Payments'

Although common sense suggests that the minimum lease payments on a 12-month lease at $1,000 a month should be $12,000, this number can be complicated by contractual clauses. Although executory costs like maintenance and insurance are usually excluded because they are the responsibility of the lessor, several factors can be add to the cost of a lease. These include any guarantees made by the lessee to the lessor about the residual value of the leased property at the end of the lease as well as any payments for non-renewal of the lease. Once these are factored in, a reasonable present value can be assigned to the lease for accounting purposes.


Accounting for minimum lease payments differs from the perspectives of the lessee and lessor. To learn more about this subject, read the original document available from the FASB.

RELATED TERMS
  1. Capitalized Cost Reduction

    Any upfront payment that reduces the cost of financing. Capitalized ...
  2. Financial Accounting Standards ...

    A seven-member independent board consisting of accounting professionals ...
  3. Lease

    A legal document outlining the terms under which one party agrees ...
  4. Lessee

    The person who rents land or property from a lessor. The lessee ...
  5. Lessor

    The owner of an asset that is leased under an agreement to the ...
  6. Lease Payments

    A line item under long-term debt on a balance sheet that indicates ...
Related Articles
  1. Should You Buy Property On Leased Land? ...
    Retirement

    Should You Buy Property On Leased Land? ...

  2. Rental Properties: Cash Cow Or Money ...
    Home & Auto

    Rental Properties: Cash Cow Or Money ...

  3. Tax Deductions For Rental Property Owners
    Taxes

    Tax Deductions For Rental Property Owners

  4. Simple Ways To Invest In Real Estate
    Home & Auto

    Simple Ways To Invest In Real Estate

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center