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How do you account for a capital lease on a cash flow statement?
capital lease is part of cash flow from investing activities and payment in this regard is shown in this section of statement.
Capitalize capital lease interest?
yes , it can be capitalized if its refere to a qulifiying asset that requier a long time to be ready for use
A lease of an asset for its entire productive life?
Lease which is done for the entire productive life of an asset is called "Capital lease or finance lease".
How do you calculate the capital lease obligation?
When you book the capital lease, record the asset at its fair market value or the present value of minimum lease payments, whichever is less. The capital lease obligation is recorded at the same amount. Minimum lease payments include all rental payments required during the term of the lease plus any residual value guaranteed by the lessee. They also include any payment the lessee must make for not renewing or extending the lease, including a requirement to purchase the asset. They do not include any guarantee of the lessor's debt by the lessee, contingent rentals, or any penalty for which the term of the lease has been extended. They also do not include the portion of the rent payments which represent executory costs, such as insurance, taxes, and maintenance, and any related profit. The interest rate used to calculate the present value of the minimum lease payments is normally your incremental borrowing rate (the interest rate you would pay to borrow a similar amount of money for a similar length of time), unless you know the lessor's implicit interest rate for the lease and that is lower than your incremental borrowing rate. Sources: SFAS No. 13; RIA Checkpoint
In what circumstances is a capital lease a better alternative to an operating lease and under what circumstances is a clapital lease a better alternative than buying an asset?
1) When you do not need a current tax deduction, a capital works better, you can take depreciation over the term of the lease. 2) You buy a appreciating asset and lease a depreciating asset, A capital lease is better with a depreciating asset. http://www.equipmentleasing101.com
If the lessee and lessor use different interest rates to account for a capital lease then total expenses for the lessee will be different from the lessor's total revenues?
yes
How do you account for a capital lease on a cash flow statement?
capital lease is part of cash flow from investing activities and payment in this regard is shown in this section of statement.
What is the difference between a financing lease and a capital lease?
A financing lease occurs through a bank/lending institution where payments are made that charge interest. A capital lease is usually a lump sum of money put up by the buyer or an investor to secure the property based on the terms of the lease for a given period.
Capitalize capital lease interest?
yes , it can be capitalized if its refere to a qulifiying asset that requier a long time to be ready for use
What is lease obligation?
it is lease paid on capital invested
What are leasing journal entries?
Leasing journal entries are the accounting entries made in the books of accounts to record the lease transactions. These entries typically include debiting the lease expense account and crediting either the lease liability account (for capital leases) or the lease payable account (for operating leases). Additional entries may be made to record any initial payments, interest expense, amortization of the leased asset, and the reduction of the lease liability over time.
Capital lease and financing lease are the same thing?
Finance lease and operating lease are different things.
Are cost of capital and marginal tax rate included on a cash flow statemnt?
Capital lease payments will affect cash flow from both operating activities and financing activities. A capital lease payment is treated as debt service. The portion of the payment applied to principal is a cash outflow from financing activities, and the portion applied to interest is a cash outflow from operating activities.
What is tax advantage of Capital lease?
A capital lease allows the lessor to take advantage of the accelerated depreciation methods, and/or the bonus first-year expensing method (e.g. section 179 deduction) for the leased asset. The lessor also gets to deduct the interest portion of the lease payments, which is greatest at the beginning of the lease. Theoretically, the aggregate deductions over the life of the lease should be equal. Thus, the lessor gets the benefit of accelerated deductibility, and therefore the desirable time value of money.
A lease of an asset for its entire productive life?
Lease which is done for the entire productive life of an asset is called "Capital lease or finance lease".
How do you calculate the capital lease obligation?
When you book the capital lease, record the asset at its fair market value or the present value of minimum lease payments, whichever is less. The capital lease obligation is recorded at the same amount. Minimum lease payments include all rental payments required during the term of the lease plus any residual value guaranteed by the lessee. They also include any payment the lessee must make for not renewing or extending the lease, including a requirement to purchase the asset. They do not include any guarantee of the lessor's debt by the lessee, contingent rentals, or any penalty for which the term of the lease has been extended. They also do not include the portion of the rent payments which represent executory costs, such as insurance, taxes, and maintenance, and any related profit. The interest rate used to calculate the present value of the minimum lease payments is normally your incremental borrowing rate (the interest rate you would pay to borrow a similar amount of money for a similar length of time), unless you know the lessor's implicit interest rate for the lease and that is lower than your incremental borrowing rate. Sources: SFAS No. 13; RIA Checkpoint
How can an accountant determine whether a lease is a capital lease or operating lease?
If a copy of the lease agreement is made available to the accountant, this should be easily determined.
