can someone explain for me the difference between the capitalising and expensing? and what’s capitalising expense and capitalised expense, are they the same thing or one of them is capitalising and the other is expensing? i am totally lost in this part… much appreciating for this!!!
i think they are th same.
Under the capital lease, you basically report all proceeds and cost from the lease of an assets in the balance sheet and income statement. For an operating lease you just report the annual expenses in the income statement and nothing in the balance sheet as everything is reported off-balance sheet. Since firms prefer to keep leases off the books, and sometimes prefer to defer expenses, there is a strong incentive on the part of firms to report all leases as operating leases. Consequently the Financial Accounting Standards Board has ruled that a lease should be treated as an capital lease if it meets any one of the following four conditions - (a) if the lease life exceeds 75% of the life of the asset (b) if there is a transfer of ownership to the lessee at the end of the lease term © if there is an option to purchase the asset at a “bargain price” at the end of the lease term. (d) if the present value of the lease payments, discounted at an appropriate discount rate, exceeds 90% of the fair market value of the asset.
First Q: Capitalising vs. expensing is one of the key concepts in accounting. I don’t see how can someone understand FSA without grasping this concept Second Q: Same thing, different tenses Milos
Lol I agree with you Milos!
Q1: Are you going to have an RD asset or are you simply going to expense it at once while the actual cash outflows are incurred… This applies to many types of expenses and provides an opportunity for management to manage earnings. Q2: Same thing as Milos - different tenses…