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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

One alleged advantage of leasing voiced in the past was that it kept liabilities off the balance sheet, thus making it possible for a firm to obtain more leverage than it otherwise could have. This raised the question of whether the lease obligation and the asset involved should be capitalized and shown on the balance sheet. Discuss the pros and cons of capitalizing leases and related assets.

Summary Introduction

To Determine: The pros and cons of capital leasing and related assets.

Introduction: A lease is characterized as an agreement between a lessee and a lessor for the contract of a particular asset for a particular period on payment of determined rents.

Explanation

The pros of capital leasing and related assets are as follows:

  • Capitalization of leases could enable administration to make helpful correlations of working outcomes which is the return on investment information.
  • The utilization of the leased property or substances is a limited right, and the payment for the property is an liability that frequently should be considered. Hence, leases ought to be treated as the two assets and liabilities.
  • The capitalization features the authoritative idea of the leased property.
  • A predetermined guidelines of capitalizing leases between all organizations would add to the equivalence of various firms...

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