Certified Professional Public Buyer (CPPB) Practice Test

What typically defines full payout leases?

1. Leases associated with low-value equipment

2. Leases that do not cover operational costs

3. Leases that last for a period shorter than the asset's life

4. Leases that allow for full ownership transfer after payment

The correct answer is: Leases that allow for full ownership transfer after payment

Full payout leases are defined by their structure, which ensures that the total payments made over the lease term cover the full cost of the asset, along with any associated fees. This type of lease typically allows the lessee to acquire full ownership of the asset after all payments have been completed. Consequently, at the end of the lease term, the lessee owns the equipment outright without any balloon payments or additional fees. This ownership transfer is a key feature that distinguishes full payout leases from other types of leasing arrangements, which may not offer full ownership or might involve residual value payments. In contrast, leases associated with low-value equipment often do not qualify as full payout leases, as they may not involve significant financial obligations. Leases that do not cover operational costs are primarily focused on the amortization of the asset's value rather than the overall expenses related to its use. Additionally, leases that last for a period shorter than the asset's life may still involve a significant portion of the cost but do not guarantee ownership transfer at the end of the term, further emphasizing that the defining characteristic of full payout leases is the complete transfer of ownership following payment.