Interest Rate Implicit in the Lease

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The “Interest Rate Implicit in the Lease” is the discount rate that equates the present value of lease payments and unguaranteed residual value to the sum of the fair value of the leased asset and any initial direct costs. This implicit interest rate is crucial for lessees and lessors in determining the financial impact of a lease agreement. It is a key concept in lease accounting, affecting both balance sheet and income statement presentations.

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