A leased asset under capital lease is disclosed on the balance sheet at its
A) present value
B) historical cost
C) current replacement cost
D) net realizable value

Question

Quizplus · Accepted Answer

Under a capital lease, the leased asset is considered to be effectively owned by the lessee and therefore must be disclosed on the balance sheet as an asset. The asset is disclosed at its present value, which is the total of minimum lease payments discounted at the interest rate implicit in the lease or the lessee's incremental borrowing rate. This is because the lessee effectively finances the purchase of the asset through the lease payments, and the present value represents the cost of that financing. Historical cost, current replacement cost, and net realizable value are not relevant for disclosing the leased asset on the balance sheet under a capital lease.

A Leased Asset Under Capital Lease Is Disclosed on the Balance