Summary of Interpretation No. 26

Accounting for Purchase of a Leased Asset by the Lessee during the Term of the Lease—an interpretation of FASB Statement No. 13

Summary

This Interpretation clarifies the application of paragraph 14 of FASB Statement No. 13, Accounting for Leases, to a termination of a capital lease that results from the purchase of a leased asset by the lessee.

The purchase by the lessee of property under a capital lease and the related lease termination are accounted for as a single transaction. The difference, if any, between the purchase price and the carrying amount of the lease obligation is recorded as an adjustment of the carrying amount of the asset. The Board also noted that Statement No. 13 does not prohibit recognition of a loss if a loss has been incurred.