What is one of the requirements of FASB 13 regarding equipment leases?

FASB 13, which relates to accounting for leases, establishes specific criteria for determining whether a lease should be classified as a capital lease or an operating lease. One of the key requirements is related to the duration and conditions of the lease agreement.

A significant aspect of FASB 13 is that, for a lease to be classified as a capital lease, it must meet at least one of several criteria. Among these criteria is that the lease term must cover a substantial portion of the asset's useful life—specifically, more than 75% of the expected life of the leased asset. This requirement helps ensure that the lessee is effectively acquiring the asset and recognizing the liability associated with the lease on their balance sheet.

Additionally, another criterion is the transfer of ownership of the asset to the lessee at the end of the lease term, which indicates a long-term commitment to the asset. Cancelable leases, however, are typically not classified under the associated criteria of FASB 13 as capital leases, but may only represent a lesser financial commitment.

The option indicating that all of the requirements must be met provides a comprehensive view of the conditions that define lease classifications per FASB 13. Understanding these requirements is essential for correct financial