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Analyze the treatment of debt in a capital lease agreement. Should the entire debt amount from...

Analyze the treatment of debt in a capital lease agreement. Should the entire debt amount from an acquisition of general capital assets be reported as debt of the fund that accounts for the activities of the department or function using the leased asset? Should the debt from an equipment lease used by multiple departments be reported in the governmental activities accounts rather than a fund? Discuss how you concluded the proper treatment of the debt. Please provide detail Answer..

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Answer #1

An agreement between lessor and lessee is called Capital lease agreement.

According to this agreement lessee does not owning the leased asset. After last date of agreement lessee return asset. If he want to continue he need to make new agreement.

In capital lease lessee can show asset in financial statement, it will come under the asset owned by company.

In liabilities side as capital lease liability.

If lessee is govt. organisation , then only activity record under govt. activity acoount.

The entire debt from an acquisation of general capital is not reported as debt of the fund that accounts for the department activities using that asset.

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