The decision to lease long term assets is an option available to firms, if this alternative has more benefits than purchasing the asset. For purposes of accounting for leases, leases can either be classified as capital or operating leases. Capital leases exist when there is a noncancellable lease transaction that meets four other categorization conditions. This could either include transfer of ownership to the lessee; there is a bargain purchase option. The term of the noncancellable lease is not less than 75% of expected economic life of asset. Lastly, the present values of the lease payments are more than 90% of the fair value of asset. If the conditions are not fulfilled then this is an operating lease (Nikolai et al., 2010)