FAS 13 overview

FAS 13 is a set of rules and regulations developed by the Financial Accounting Standards Board (FASB). It is regulated on how leases are classified for GAAP and tax reporting purposes. The FAS13 test is used to submit the lease data to a series of calculations that are used to answer these questions. After you run the FAS 13 test, the test results are displayed on the FAS 13 page.

If the answer to any of these questions is Yes, then the lease is classified as Finance:

• Is there a transfer of ownership of the leased property from the lessor to the lessee at the end of the lease?

• Does the lease have a bargain purchase option?

• Is the lease term, at inception, equal to 75 percent or more of the estimated economic life of the leased property?

• Is the present value of the minimum lease payments at the beginning of the lease 90 percent or more of the fair market value at the inception of the lease?