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Topic: Current accounting for leases requires that certain leases be capitalized. For capital leases, an asset and...

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Accounting

Topic: Current accounting for leases requiresthat certain leases be capitalized. For capital leases, an assetand the associated liability are recorded. Whether or not the leaseis capitalized, the cash fows are the same. The rental payments areset by contract and are paid over time at equally spacedintervals.  

Required:

If one of the objectives of fnancial reporting is to enableinvestors, creditors, and other users to project future cash fows,what difference does it make whether we report the lease as aliability or simply describe its terms in foot-notes? Discuss.

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Given information Current accounting for leases requires that certain leases be capitalized For capital leases an asset and the associated liability are recorded Whether or not the lease is capitalized the cash fows are the same The rental payments are set by contract and are paid over time at equally spaced intervals Required If one of the objectives of fnancial reporting is to enable investors creditors and other users to project future cash fows what difference does it make whether we report the lease as a liability or simply describe its terms in footnotes ANSWER Rent contracts can be isolated into two kinds 1Working lease 2 Capital rent The essential contrast between these two is responsibility for resource being rented In a Working lease the responsibility for resource stays with the lessor while in Capital rent the proprietorship may get changed relying on the terms of rent contract There are numerous points of interest and impediments of both the sort which is specifically identified with money streams Along these lines there exist diverse administrative rules regarding detailing of both the leases as they have generous effect on the budgetary explanations Ostensibly the most alluring favorable position of working leases is that they can be utilized as a type of reeling sheet financing Be that as it may this causes much disarray At the point when an organization gains a benefit with obligation financing a risk    See Answer
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