Monday, April 29, 2019

Intermediate Accounting 2 answeres Essay Example | Topics and Well Written Essays - 1000 words

Intermediate Accounting 2 answeres - Essay Example(Maxwel, 2010) The adopt receivable will be revealed as an asset on the balance sheet, and the interest revenue is recognize over the term of the lease, as paid. Normally, the company will record its sale on its books, removing the asset from its books and renewal it with a receivable from the lease. During the lease term, the lessor receives interest income. The cash inflow get evens the lease payments and the cash outflow is equal to the book value of the asset. (Paul, 2007)Legally, the lease expenses are usually treated as run expense and the operating lease is not revealed as part of the capital of the firm. When a lease is classified as a sales type lease, the present value of the lease expenses is treated as debt, and interest is imputed on this pith and shown as part of the income statement. Changing from operating leases to sales type leases increases the debt shown on the balance sheet significantly. (Paul, 2007).It is whence wise for the company to use operating lease since there would be no increase in debt.The operating lease payments in future years, which are revealed in the footnotes to the financial statements for US firms, should be discounted moxie at a rate that should reflect their status as unsecured and fairly risky debt. As an approximation, using the firms current pre-tax cost of debt as the discount rate yields a strong estimate of the value of operating leases. Note that capital leases are accounted for similarly in financial statements, provided the significant difference is that the present value of capital lease payments is computed using the cost of debt at the era of the capital lease commitment, and is not adjusted as market rates change.Using straight tone method Depreciation = (Cost - Residual value) / Useful life/salvage value. Suppose the cost of airplane is p, consequently the salvage value of x and y under 15 and 25 years

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