Question

Explain why a monopolist who leases does not engage in planned obsolescence

Answer 1

Planned obsolescence or depreciation is charged to depreciable capital assets, however, in case of a lease, which is generally an operating lease, against periodic rental payments doesn't fall under a capital asset. A capital asset is one which is recorded on the balance sheet of the lessee, who in this case is the monopolist, where as, an operating lease is not recorded in the balance sheet rather expensed periodically by way of rental expense. The title to the lease is also not transferred to the lessee and at the end of the lease period, the asset is returned to the owner. Therefore only the use of the asset was rented so depreciation falls on the financial statements of the lessor and not the lessee.

answered by: anonymous