Using the present value of reported rental expenses systematically undervalues the asset,since it ignores the residual value returned at the end of the lease contract.

Question

Quizplus · Accepted Answer

The present value of reported rental expenses only takes into account the cash outflows associated with the lease contract, and does not consider the residual value that may be received when the asset is returned. This undervalues the asset, as it fails to fully account for its overall economic value.

Using the Present Value of Reported Rental Expenses Systematically Undervalues