Which discount rate is required to be used by lessors?
The exercise rate specified in the lease
The incremental borrowing rate
The interest rate implicit in the lease
The market rate estimated at the end of the lease term
According to the principles of lease accounting, lessors are required to use the interest rate implicit in the lease when determining the lease receivable and related income. This rate represents the rate that the lessor could have earned if the lease was a loan in substance. Therefore, the correct discount rate to be used by lessors is the "interest rate implicit in the lease."
