Facts

April 1, 2011 AVE entered non-cancelable agreement to lease 5 high-speed

locomotives
8 year lease term, has an 11 year avg. economic life
Assuming no residual value
There is a market for second-hand locomotives that allows an estimate of
expected residual value of the locomotives. 20% of Fair value on April, 1,
2011

Lease term commence on April 1, 2011.

1
st
of each month payment of $120,000 for the 5 locomotives
Incremental monthly borrowing rate is .447%
Implicit monthly interest rate on lease is .460%

At expiration of lease, an option to buy at 17% of fair value on April 1, 2011
April 1, 2011 fair value was estimated at $10.5 million

Took possession of locomotives on April 1, 2011


IFRS Viewpoint
If IFRS adoption was used there would this would be considered a finance lease, this
is because of the bargain purchase option that is available, the lease term is a major
portion of the economic life for the asset (8 years out of 11 years), and its a non-
cancelable lease agreement.

Under US GAAP this would be considered a capital lease because of the bargain
purchase option that has been offered. It does not meet the greater.




US GAAP Viewpoint