3_Lease_illustration - Lease : Illustration Operating Lease...

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Lease : Illustration Operating Lease The lessee charges rentals (MLP) to expense as incurred. No asset or liability is recognized on the balance sheet Capital Lease The lesse records it ( both asset and liability ) at an amount equal to the present value of the MLP over the least tern ( excluding executory costs) The leased assets must be depreciated in a manner consistent with the lessee’s normal depreciation policy. Interest expense is accrued on the lease liability like any other interests bearing liability The accounting rules require that all a lessees disclose, usually in notes to financial statements: (1) future minimum of lease payments separately for capital leases and operating leases for each of the five succeeding years and the total amount thereafter, and (2) Rental expense for each. period that an income statement is reported Illustration Suppose: - A company leases an asset on the first of January, 2005— it has no other assets or liabilities. - Estimated economic life of the leased asset is five years with an expected salvage value of zero at the end of the five years. The company will depreciate this asset on a straight line basis over its economic life. - The lease has a fixed no cancellable term of five years with annual minimum lease payments of $2,505 paid at the end of each year.
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This note was uploaded on 06/11/2011 for the course ACCT 3607 taught by Professor Mike during the Spring '11 term at Assumption College.

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3_Lease_illustration - Lease : Illustration Operating Lease...

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