If a leased asset has maintenance offered as an included extra, such an extra would be evaluated differently from other leasing cash flows in this way.
A)Maintenance would be estimated over shorter time intervals than the lease
B)Maintenance would represent an extra cost to the lessee
C)Maintenance would be discounted at a higher discount rate to reflect risk, and represent a cash inflow for lessee
D)Maintenance would all be paid up front

Question

Quizplus · Accepted Answer

Maintenance offered as an included extra would be evaluated differently from other leasing cash flows as it would be discounted at a higher discount rate to reflect risk and represent a cash inflow for the lessee. This is because the cost of maintenance may be uncertain and the lessee may have to bear the risk of any unexpected maintenance costs. Therefore, the cash flows associated with maintenance would have a higher discount rate to reflect this risk. Additionally, since the maintenance is included as an extra in the lease agreement, it would represent a cash inflow for the lessee as they would not have to pay for it separately.

If a Leased Asset Has Maintenance Offered as an Included