present value of the MLP is the selling price of the lease asset. Thus, at the time of the lease's inception, the lessor recognizes a gross profit equal to the present value of the MLPs less the cost of the leased asset. Interest revenue is equal to the implicit interest rate times the net lease receivable at the beginning of the period.
Direct financing lease: If the lease is a capital lease and the lessor is not a dealer in the leased asset (e.g., a finance company), then the lease is a direct financing lease. No gross profit is recognized at lease inception and all profit is interest revenue. The implicit rate is such that the PV of the MLPs equals the cost of the asset. Interest revenue equals the implicit interest rate times the net lease receivable at the beginning of the period.