Capital leasing and present value of asset

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Under capital leasing, present value of the asset appears as both an asset and a liability on the balance sheet, with payments being capitalized at an appropriate borrower rate (Young, Cohen, and Bens, 2019). Some of the characteristics of this lease is the ownership of the asset would be transferred at the end of the lease, the lease term is equal to 75% of the life of the leased asset, or present value of the minimum lease payments equals or exceeds 90% of fair market value (Young et al., 2019). Under Operating leases, the lease is treated as a rental contract and payments are recorded as operating expenses (Young et al., 2019). This approach also excludes the lease value from the balance sheet and would often be kept on an off-balance-sheet (OBS) (Young et al., 2019).

Reference no: EM133359873

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