Operating and Capital Lease

[phBOOM]

Hi all,

I am new to this forum. I'd like to clarify some accounting concepts regarding Operating and Capital Leases.

Operating Lease
-- rent expense impacts CFO and it is included in the income statement

*How is rent expense calculated? Is it the PV of leased assets or market value.
Is Op. lease assets recognized on the balance sheet? I saw a company that included its Op. lease assets as part of its PPE.

Capital Lease
-- Imputed interest on lease obligations and depreciation impact CFO and are included in the income statement.

-- Lease assets are recorded under assets, while lease obligations are recorded as liabilities.

* Again, how are interest and depreciation calculated. Are they based on PV of leased assets?

Thanks a lot for the help,

Jason...

 

[monki]

are you writing the June exam?

 

[phBOOM]

Writing on the June exam... and hopefully pass

 

[Super I]

Jason, unless you still live with your parents (or own a place), rent expense under an operating lease is calculated the same way you decide how much you pay your landlord each month. It's that simple.

Re capital lease, you create an asset and a liability. The asset is depreciated like any old asset, and the based on the interest rate used to come up with the liability amount, part of each payment is used to reduce principal with the balance to interest (tied into the PV calcs used)