What is Initial Indirect Cost (IDC) in leasing?

• A. It is any cost directly associated with initiating the lease and must be expensed as incurred.
• B. Could include fees paid to vendor/broker, internal sales commissions and other expenses incurred by lessor associated with transaction.
• C. IDC is depreciation of the leased asset.
• D. IDC is the lessee's cost to exercise a purchase option.

Answer: (B)

The idea behind Initial Indirect Cost is that it covers costs incurred to originate a lease that aren’t tied directly to the leased asset itself. These are the transactional expenses the lessor incurs in setting up the lease, not costs that come from delivering or depreciating the asset. Examples include fees paid to a vendor or broker and internal sales commissions, plus other miscellaneous expenses related to the lease transaction. This aligns with the notion that IDC consists of indirect costs of obtaining the lease. It isn’t depreciation of the leased asset, nor is it the lessee’s cost to exercise a purchase option.