[popitsa]

Hello everyone,
I have a question with depreciating equipment under a capital lease. The equipment’s life is 12 years. However, the company said is depreciating its other equipments for 15 years. How many years you would depreciate this equipment? I say 12 bc this is its useful life and under capital leases you go with equipment’s useful life.

[mckan514w]

ON a capital lease it is the shorter of the equipments useful life or the lease, unless there is a BPO that will be exercised or Transfer of Title – then it is useful life. So yes, I would say if the useful life of the equipment is 12 with no other information provided it would be 12- you can't deprecate it past its useful life.

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[popitsa]

The lease is for 10 years. However, present value of payments its 90% of total value plus the equipment's life and lease is more than 75% (10/12). So it is a capital lease and you depreciate for equipment's life. That is what I keep seeing on Roger and Ninja questions.

[j3cpa]

Hi,

The way i remember this:

Title Transfer or Purchase option = capital lease = depreciation over it's estimated life. The reason being that if ultimately i get the leased asset, then it's mine to begin with i will depreciate it over its useful life.

if it meets the capital lease under PV payment or 75% of useful life then I will only do it to the lesser of its useful life or lease's term. being that if I depreciate over its lease life, and when the lease end, i can just return the asset and won't have to credit back the depreciation if i over depreciated (had i done useful life instead of lease term).

Hope I helped.

Study Material:
GLEIM
BEC - FEB/2012
AUD - FEB/2012
FAR - JULY/2012
REG - JULY/2012

[Author]

Replies