What are some of the views on capitalization of leased assets?
Some of the views on capitalization of leased assets make transactions seem much less stressful for the lessee. Most companies prefer to lease rather own simply because leasing is less costly than financing. Startup companies that try to get into business would rather lease in order to claim tax benefits that they otherwise would lose if they did not lease. It is a win-win situation for both the lessee and the lessor. When companies get tax benefits they then can pass some of those benefits to the lessor by charging less for the asset.
The other view is the tax advantages that come with leasing. For example, a dealership can lease a car and while the car is being leased, they can depreciate the car or asset so that for tax purposes it would be in a lower bracket.
In what situations do you think leased assets should be reported as capital?
Leased assets should be capitalized when the leases are similar to installment purchases. If a company capitalizes its installment purchases then it should capitalize its leases that have similar characteristics. The FASB agrees that the capitalization approach should be used when the lease is similar to an installment purchase (Kieso, Weygandt, and Warfield, 2007). Leases should be capitalized when a lease transfers all of the benefits and risks of property ownership, if the lease if non-cancelable. If a lease does not transfer all the benefits and risks of ownership are operating leases.
Select an asset that does not meet the GAAP requirements for capitalization on a technical basis (either the 75% or 90% test),
An asset that does not technically meet GAAP requirements on a technical basis for capitalization would be space rental in a place such as the mall or airport. The spaces within these two types of places have far longer useful lives than what most of the