Question

Does the fair value of capital leases include depreciation in its calculation, or do we need to include it in the balance sheet individually?

Answer 1

Capital lease is a financing arrangement, a company must break down its periodic lease payments into interest expense based on the company's applicable interest rate and depreciation expense.A company must also depreciate the leased asset that factors in its salvage value and useful life.

a capital lease involves the transfer of ownership rights of the asset to the lessee. The lease is considered a loan (debt financing), and interest payments are expensed on the income statement. The present market value of the asset is included in the balance sheet under the assets side and depreciation is charged on the income statement. On the other side, the loan amount, which is the net present value of all future payments, is included under liabilities.