A lease that transfers substantially all of the benefits and risks incident to ownership of property should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee and as a sale or financing by the lessor. All other leases should be accounted for as operating leases. Lease transfers ownership of the leased property to the lessee by the end of the lease term.
Lease contains a bargain purchase option.
If lease meets any one of these conditions, it is classified by the lessee as a capital lease. Otherwise, an operating lease. Collectibility of minimum lease payments is reasonably predictable. No important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor under the lease. Otherwise, an operating lease.