Why current ratio and working capital are lower in capital lease as compared to operationg leases?
liabilities are higher.
you mean liabilities are higher for capital lease -why
hkalra32 let’s see it this way. Step by Step. In capital lease step (1) we do is that we calculate the present value of the lease payments and the PV goes to both sides of B/S i.e. Liabilities and Assets by same amount. Now Step (2) we have lease payments (& interest payments) > Related to liabilities We have to depreciate our lease asset > Related to asset (See it as an accounting relation - and we also know that our books must reflect the right information) The current principal amortization for the lease is added to current liabilities thats why WC and current ratios are depressed. For operating lease its just simple concept; It’s just a rental agreement no assets are liabilities are reported and lease expense is just taken to I/S and then in CFO as lease payment.