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Week 5 Discussion Question 1

Week 5 Discussion Question 1 - Week 5 Discussion Question 1...

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Week 5 Discussion Question 1: What are the criteria for classifying a lease as operating or capital? The criteria for classifying an operating lease are: The lease agreements must specify an increases in the scheduled rent over the term of the lease, which cover or are associated with economic factors related to the property (such as an increase in the cost of living or changes in inflation); and The payments agreed to in the lease are paid in a time pattern (such as a requirement/agreement to pay rent on or before the first of each month) Some operating leases with rent increases contain payment requirements in a specific manner (like year to year), which are artificially lower when compared to previous or future payment requirements. For these types of operating leases the following measurement methods should be used: The operating lease payments/transactions need to be measured on a straight-line basis of the term of the lease; or
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