CAPBS Inc. enters into a lease agreement to acquire the use of a piece of machinery for four years beginning on 1 January 20X0. The lease requires four annual payments of €28,679 starting on 1 January 20X0. The useful life of the machine is four years, and its salvage value is zero. CAPBS follows US GAAP and accounts for the lease as a finance lease. The fair value of the machine is €100,000. The present value of the lease payments using the company's discount rate of 10 percent is €100,000. The company uses straight-line depreciation. Is it appropriate for CAPBS to treat the lease agreement as a finance lease? How would your answer be different if CAPBS follows IFRS? What is the amount reported as a leased asset on the balance sheet on 1 January 20X0? What depreciation expense is reported in fiscal year 20X0?
CAPBS Inc. enters into a lease agreement to acquire the use of a piece of machinery for four years beginning on 1 January 20X0. The lease requires four annual payments of €28,679 starting on 1 January 20X0. The useful life of the machine is four years, and its salvage value is zero. CAPBS follows US GAAP and accounts for the lease as a finance lease. The fair value of the machine is €100,000. The present value of the lease payments using the company's discount rate of 10 percent is €100,000. The company uses straight-line depreciation.
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Is it appropriate for CAPBS to treat the lease agreement as a finance lease? How would your answer be different if CAPBS follows IFRS?
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What is the amount reported as a leased asset on the balance sheet on 1 January 20X0? What depreciation expense is reported in fiscal year 20X0?
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