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What are the four criteria used for determining if a lease is to be treated as a capital lease?

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  • Post Date 2018-11-08T09:06:30+00:00
  • Post Category New Samples

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What are the four criteria used for determining if a lease is to be treated as a capital lease?

Discussion Questions

INSTRUCTIONS:

1. What are the four criteria used for determining if a lease is to be treated as a capital lease? (This question can be expanded to discuss the income statement and balance sheet implications of both a capital lease and an operating lease.). 2. How much confusion do you personally think is caused by the various lease accounting treatments and why do you think this? 3. What is the criteria for Classifying Leases?

CONTENT:
Discussion QuestionsNameInstitution1. What are the four criteria used for determining if a lease is to be treated as a capital lease?The four criteria which are used in determining whether a lease should be treated as a capital lease include; If the ownership in the transferred asset to lease at the end of the leaseIf the lease has a bargain purchase optionIf the lease term more than 75% of the asset life, and If the current value of the Minimum lease payments ( MLP) is more than 90% of the leases property fair value at the lease inception.In case of a capital lease, the records present the future cash flow value as recognized expenses and revenue. The received lease appears on the balance sheet as an asset and the interested revenue recognized over the period of the lease as being paid. When it comes to tax, the tax benefits can only be claimed on the leased asset if it is an operating lease, however, the revenue code makes use of a different approach in determining if the lease is an operating leases (McGregor, 2006) When classified as an operating lease, the expenses are recorded as operating expenses and the operating lease does not appear as part of the firm’s capital. When...

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