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How should executory costs be treated? As part of the lease payment
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How should executory costs be treated?
As part of the lease payment.
Capitalised and amortised over the lease term.
As an expense.
None of the above
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QUESTION 10
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Which of the following would suggest that a lease should be classified as a finance lease?
The present value of the lease liability is 50% or more of the fair value of the asset.
The lease term is 25% or more of the assets useful life.
The asset is likely to be returned to the owner at the end of the lease term.
None of the above
Expert Solution
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Soluton :
Answer : Option with " As an Expenses" is correct Option
Explaination:
An executory cost are normal expenses which are associted with the lease assets like insurance, repair , maintenance,property taxes etc. They are expense out as and when incurred as they are considered as period cost.It is not included in minimumlease payment.
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Option A------ the present value of lease liability is 50% or more of fair value of asset.
option A suggests that it should be classified as finance lease whereas other options suggest it to be operating lease.
Under Finance lease, assets ownership is transferred to lessee at the end of lease.
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