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Ask Dr. Fiona Chen Your Own Question
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 482
Experience:  Former IRS Revenue Agent
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We have a van lease that per the agreement has: 48,969

Customer Question

We have a van lease that per the agreement has:
48,969 Capitalized cost
41,800 actual cost including tax and registration fees
40,320 total payments ($840 monthly payments for 48 months)
12,500 Residual Value
Company assumes an economic life of 5 years so it meets criteria for capital lease
It is closed end agreement
I tried putting it into a capital lease amortization calculator that gave me interest of zero
I tried another approach and did a lease calculator putting in all the variables except interest and came up with an interest rate of 3.058% and a capital lease obligation of 37,906
Trying to determine if this is correct and why the leasing company shows a capitalization value so high
Submitted: 1 year ago.
Category: Finance
Expert:  Dr. Fiona Chen replied 1 year ago.

Dear Customer,

The capitalized cost is not a rational formula amount. The capitalized cost can include anything the dealer would like to put in. They are such as, acquisition fees, that is like a closing cost for the loan, in a way this lease, or similar to the origination fee, points, in a mortgage loan. This capitalized cost can also include the balance remaining on the loan of your trade-in car.

You need to ask the dealer to itemize the capitalized cost and show you the details they included and how they derived the amount.


Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP