Crucial 2012 Annual Report Download - page 250

5
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(j) Capital leases
A lease is deemed to be a capital lease if it conforms to any one of the following classification criteria:
(i) the lease transfers ownership of the leased assets to the lessee by the end of the lease term;
(ii) the lease contains a bargain purchase option;
(iii) the lease term is equal to 75% of or more of the total estimated economic life of the leased assets; this
criterion should not be applied to leases in which the leased asset has been used for more than 75% of its
estimated economic life before the lease begins;
(iv) the present value of the rental plus the bargain purchase price or the guaranteed residual value is at least
90% of the fair market value of the leased assets at the inception date of the lease.
For the lessor, a capital lease must also conform to any one of the four classification criteria specified above
and both of the following two further criteria:
(i) collectibility of the lease payments is reasonably predictable; and
(ii) no important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor
under the lease.
Under a capital lease, the Company, as the lessee, capitalizes the leased assets based on (a) the present value
of all future installment rental payments (minus executory cost born by lessor) plus bargain purchase price or
lessee's guaranteed residual value or (b) the fair market value of leased assets at the lease inception date,
whichever is lower. The depreciation period is restricted to the lease term, rather than the estimated useful life
of the assets, unless the lease provides for transfer of title or includes a bargain purchase option.
Under a capital lease, the Company, as the lessor, records all installments plus bargain purchase price or
guaranteed residual value as the lease receivables. The implicit interest rate is used to calculate the present
value of lease receivables as the cost of leased assets transferred. The difference between the total amount of
lease receivables and the cost of leased assets transferred is recognized as unrealized interest income and is
then recognized as realized interest income using the interest method over the lease term.