What is Meant By the Present Value of Minimum Lease Payment?

If a lessee automatically gains ownership of the asset at the end of the lease, or if the lessee can buy the asset at a bargain price at the end of the lease, the lease should be capitalized. A lease should also be capitalized if the lease runs for 75% or more of the asset's useful life, or if the present value of the lease payments is at least 90% of the asset's fair market value when the lease is created.