Value of Leased Property is defined as the price at which the property could be sold at an arm's length transaction by unrelated parties.

• A. The price at which the property could be sold at an arm's length transaction by unrelated parties.
• B. The normal selling price, net of volume discounts for a lessor who is a manufacturer or dealer.
• C. The cost, net of volume discounts for a lessor that is not a manufacturer or dealer.
• D. The discounted cash flows of the minimum lease payments.

Answer: (A)

Fair value is the price at which the asset would be sold in an arm’s-length transaction between unrelated parties. In lease accounting, that market-based price serves as the standard for valuing the leased property because it reflects current market conditions rather than internal prices, discounts, or the cash flows from the lease. This benchmark is used (for example) to compare against the present value of minimum lease payments to determine how the lease should be classified and accounted for. The other measures describe different concepts—selling price to a dealer (which includes dealer-specific factors), cost basis, or the PV of lease payments (which reflects the lease arrangement itself, not the asset’s market value). Thus, the price defined by arm’s-length market sale is the correct definition of the value of leased property.