Capital Lease
Our visitor asked about capital
lease. We try to give some suggestions in this video. In this video, we
discuss how the asset and liability are calculated if capital lease is used.
Calculation of liability is similar to those used for bonds. You may refer to
“Premium Bond Liabilities on
Balance Sheet” for comparison. The following is a part of the
transcript. This video requires Flash 8 or above. If it does not start, click the
play button to start.
Question: How are the
asset and liability amortized differently in the balance sheet?
|
|
Let’s try this example. Assume
the company rents a machine for 3 years. It has to pay $10,000 every year. And
the discount rate is 10%. If capital lease is used, how do the asset and
liability evolve?
The following is the answer. Please refer to the video for details.
|
|
Asset
(year end) |
Liability
(year begin) |
Interest |
Payment |
Liability
(Year End) |
|
2004 |
24868.52 |
|
|
|
|
|
2005 |
16579.01 |
24868.52 |
2486.852 |
10000 |
17355.37 |
|
2006 |
8289.507 |
17355.37 |
1735.537 |
10000 |
9090.909 |
|
2007 |
0 |
9090.909 |
909.0909 |
10000 |
0 |
This post still contains the previous post’s video i.e Technological Efficiency and Economic Efficiency
Based off the static table provided I understand that the Asset initial value = PV or MLP, and it is depreciated using the straight line method (that gives us the value of the asset each year) Now the for the Liabilities: It starts off with initial asset and we then subtract out the interest on the liability at 10% and also subtract the yearly payment i,e 10000
Hi Vivek, we have uploaded the right one. Sorry for the inconvenience!
For the liability, Year_End = Year_Begin + Interest – Payment.
Hi, When constructing the balance sheet for 2005, what factor needs to be added to keep the books balanced?
hi my confusion is why are we subtracting the payment and adding the interest expense . Since interest payment also goes to the lessor……. why is it not subtracted from the liability