Asked by Sanna Gunnarsson on Jul 08, 2024
Verified
A lessee must use the incremental borrowing rate to value a capital lease.
Incremental Borrowing Rate
The interest rate a lessee would have to pay to borrow on a collateralized basis over a similar term to lease a similar asset, relevant in lease accounting.
Capital Lease
A lease agreement that has the characteristics of a purchase agreement, where the lessee assumes most of the risks and rewards of ownership.
- Gain an understanding of the specific directives issued by GAAP concerning the management of leases.
- Ascertain the effects on depreciation, expense recognition, and balance sheet statements for leases in compliance with GAAP requirements.
Verified Answer
TS
Thong SreyrothJul 11, 2024
Final Answer :
False
Explanation :
A lessee can use either the incremental borrowing rate or the rate implicit in the lease (if it can be readily determined) to value a capital lease (now referred to as a finance lease under ASC 842 and IFRS 16).
Learning Objectives
- Gain an understanding of the specific directives issued by GAAP concerning the management of leases.
- Ascertain the effects on depreciation, expense recognition, and balance sheet statements for leases in compliance with GAAP requirements.