Under US GAAP, unless the lessor accepts sufficient risk through a residual sharing agreement to meet the 90% fair value test for it to qualify as an operating lease for the lessee, a TRAC lease will be classified by the lessee as a capital lease for financial reporting purposes. A TRAC lease is an open-end equipment lease with a contract provision that requires the lessee’s final rental payment on a leased motor vehicle or trailer to be adjusted either upward or downward by reference to the amount realized upon sale or other disposition of the asset compared to the residual value stipulated in the contract.
TRAC Lease |
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