The acquiree is a party to a 5-year remaining term operating lease requiring payments of $1,000 per month at the start of each month. The current rental rate for such an asset on a new 5-year lease...

The acquiree is a party to a 5-year remaining term operating lease requiring payments of $1,000 per month at the start of each month. The current rental rate for such an asset on a new 5-year lease would be $1,300 per month. Assuming an annual interest rate for this type of transaction of 8%, the calculation would be as follows:

An intangible asset, Favorable Operating Lease Terms, would be recorded and amortized over five years. The effective interest method of amortization should be applied. If the acquiree is a party to a capital lease, the asset would be recorded at fair value as would the liability under the capital lease.