A lease contains a bargain purchase option. In determining the lessee's capitalizable cost at the beginning of the lease term, the payment called for by the bargain purchase option would:

Question

Monserrat Harrison

Business

18 June, 00:14

A lease contains a bargain purchase option. In determining the lessee's capitalizable cost at the beginning of the lease term, the payment called for by the bargain purchase option would:

+5

Answers (1)

Know the Answer?

Sylvia Kent · Answer 1

be added at its present value.

Explanation:

A lease that contains a bargain purchase option is called a capital lease.

A capital lease must amortize the capitalizable cost of the leased asset in a similar way to the normal depreciation policy used with the other assets that the lessee might have. In order to do this, the capitalizable cost must include the present value of the bargain purchase option.