for OL, we have one single payment to be made i.e. the annual rent or lease payment. the whole of it is reported under CFO. for CL, we have 2 payments - depr and interest Then where does the point come in that the annual lease payment is divided into interest and principal payment? Where the interest is reported under CFO and principal under CFF ??
The interest is reported as CFO and the principle is reported as CFF for Capitalized leases.
So you capitalize lease, record it as a depreciable asset equaling the PV of the future lease payments on your B/S. On the other hand you also recognize a liability. This liability behaves just like an amortizing loan. You pay interest and amortize principle.
it’s weird. capital leases seem to be everywhere in CFA 2 but not real section specifically on them… i took level 1 a long time ago. is that where they are dealt with??
Are we saying the payments under CL comprises of: 1. Depr 2. lease payment (further subdivided into interest and principal) ??
isn’t depreciation on one side. then lease payment on other side.
Got it … thanks
dont confuse payment with expense the payment is the same no matter what just that operating payment = expense capital expense = depr expense +interest expense