We're about to lease one of our properties. The term of the lease is 10 years with annual rent of Rs. 52,000. However, there is also an option to buy the property which affects the first two years – this can be at any time within those two years. The option is for Rs. 900,000.00, . The lessee told us he would do everything he can to execute the option ASAP.
The question is: how should we account for this arrangement?
I'm not sure how to interpret the above and how to account for a lease I know will be most probably less than 12 months due to execution of a purchase option.