The lessee normally measures the lease liability to be recorded as the:
A)Future value of the minimum lease payments.
B)Sum of the cash payments over the term of the lease.
C)Present value of the minimum lease payments.
D)Fair market value of the leased asset.

Question

Quizplus · Accepted Answer

The lessee should measure the lease liability at the present value of the minimum lease payments, which includes lease payments, guaranteed residual value, and any purchase option that the lessee is reasonably certain to exercise. This is based on the concept of the time value of money, where future cash flows are discounted to their present value. This amount will be higher than the sum of cash payments over the term of the lease because it takes into account the interest rate implicit in the lease or the lessee's incremental borrowing rate.

The Lessee Normally Measures the Lease Liability to Be Recorded