Capital lease method: A process of using the asset for a rental payable in installments along with interest and gets the ownership of the title at the end of the lease contract is termed capital lease. In this, the owner of the asset or the lessor need not bear expenses like depreciation , insurance, maintenance and repair. All these expenses need to be paid by the lessee. In a nutshell, capital lease is like an installment sale. Direct finance leasing: An agreement created between the non manufacturer and a lessee who use the asset merely for the interest receivable is termed the direct finance lease. In this arrangement the lessor provides finance to the lessee and leases the asset to the lessee. The income receivable by the lessor is the interest payable for the leased asset value. Residual value: The amount which is remaining after computing the depreciation throughout the life of the asset is termed residual value. In the contract of lease, the lessor may guarantee a value of salvage which is included in the minimum lease payment. This guaranteed salvage value is nothing but the guaranteed residual value of the asset. To determine the treatment of guaranteed and unguaranteed residual value in different types of lease.

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Chapter 21, Problem 15Q

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Capital lease method: A process of using the asset for a rental payable in installments along with interest and gets the ownership of the title at the end of the lease contract is termed capital lease. In this, the owner of the asset or the lessor need not bear expenses like depreciation, insurance, maintenance and repair. All these expenses need to be paid by the lessee. In a nutshell, capital lease is like an installment sale.

Direct finance leasing: An agreement created between the non manufacturer and a lessee who use the asset merely for the interest receivable is termed the direct finance lease. In this arrangement the lessor provides finance to the lessee and leases the asset to the lessee. The income receivable by the lessor is the interest payable for the leased asset value.

Residual value: The amount which is remaining after computing the depreciation throughout the life of the asset is termed residual value. In the contract of lease, the lessor may guarantee a value of salvage which is included in the minimum lease payment. This guaranteed salvage value is nothing but the guaranteed residual value of the asset.

To determine the treatment of guaranteed and unguaranteed residual value in different types of lease.

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