Leasing Accounting Methods
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Identify the two recognized lease accounting methods for lessees and distinguish between them.
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The solution discusses leasing accounting methods.
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Identify the two recognized lease accounting methods for lessees and distinguish between them.
Meaning of lease:
A lease is defined as an agreement conveying the right to use property,
plant or equipment (land and/or depreciable assets) usually for a stated period of time
Following are two types of recognized lease accounting methods:
Capital lease:
Capital lease means is a type of lease which effectively allows a firm to finance the purchase of an asset and the lessee will be given the right to purchase the asset at the end of the lease period at the bargain price. Therefore, a finance lease will give the lessee control over an asset for a large proportion of the asset's useful life, providing them the benefits and risks of ownership. Conditions to be followed for treating the lease as capital ...
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