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

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center