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asp87
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| Posted: 01 Jul 2009 at 16:25 | IP Logged
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I know that the equipment is depreciated using its economic life if there is an ownership transfer or a bargain purchase option, and that the lease life is used for capital leases not meeting one of those 2 requirements.
My question is about the depreciable base. Should we use the asset's value or the present value of payments? And is the answer to that question the same when the economic life of the asset is used, rather than the lease life?
Thanks.
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Payal123
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| Posted: 01 Jul 2009 at 18:09 | IP Logged
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hey asp87,
This is what i understand.
Lease is recorded at Lower of:
present value of minimum lease payments
or
fair Value of the asset at the inception of the lease.
So deprecicable base would be the lower of the two Less: salvage value.
I think it is irrespective of the term(lease life or asset life).
It would be gr8 if some1 could confirm this.
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DanielleIvy
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| Posted: 02 Jul 2009 at 16:34 | IP Logged
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I don't know what exam prep you are using, but Becker gives a great tip on this in my opinion, just remember that for leases, you use the LESSER of. It has helped me remember it and we will see how well I do on the exam next week!
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Topic: Quick question-capital lease depreciation
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