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Capital Lease Buy-Out
A capital lease was recorded for piece of equipment. There was a buy-out option, but the price of the buy-out was not specified in the lease. The final lease payment is now being made and the lessor has determined the buy-out price to be $10,000. How is the $10,000 cash payment recorded, since the loan is fully amortized with no final buy-out payment remaining, and the asset is fully depreciated. Is this recorded as another fixed asset and depreciated even though the original capital asset is fully depreciated?
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By the sounds of it, the asset has been depreciated over the lease term rather than its useful life, so still has useful life remaining - after all, who's going to pay $10k at the end of a lease term for something that is no use to them?
In which case, you would record a new asset at $10k and depreciate it over the remainder of its useful life. |
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