How Do You Spell BARGAIN PURCHASE OPTION?

A bargain purchase option is a term used in accounting and finance that refers to a provision within a contract or agreement which allows a lessee to purchase an asset at a significantly lower price than its fair market value upon the completion of the lease period.

In a typical lease agreement, if the lessee wishes to acquire the leased asset at the end of the lease term, they may have the option to exercise the bargain purchase option. This provision enables the lessee to purchase the asset for a predetermined price that is significantly lower than the asset's current market value.

The purpose of a bargain purchase option is to provide an attractive opportunity for the lessee to acquire the asset at a reduced price, reflecting the depreciation and wear and tear over the lease term. By availing this option, the lessee can benefit from the favorable market conditions or any potential decline in the asset's value over time.

This provision is commonly found in lease agreements for equipment, machinery, vehicles, or real estate. It allows the lessee to enjoy the benefits of using the asset during the lease term, while also providing the opportunity to obtain ownership at a discounted rate.

However, it is important to note that a bargain purchase option is subject to specific terms and conditions outlined in the lease agreement. Additionally, the use and accounting treatment of this option may vary depending on applicable accounting standards or regulations.