Fixed income instrument

Finance Junkie
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Joined: Mon Oct 06, 2014 7:36 am

Fixed income instrument

Postby chandniwadhwani92 » Wed Dec 24, 2014 4:59 pm

Financial lease-In this asset is purchased by financing loan .With this both asset and liabilities are increased by same amount
Over the term of lease lessee records depreciation expenses in asset and interest expenses in liability
My question
Why interest expenses are recorded by lessee in liabilities.It should be recorded in income statement
Source of question
Schweser page 66 book 3

Finance Junkie
Posts: 704
Joined: Wed Apr 09, 2014 6:28 am

Fixed income instrument

Postby edupristine » Fri Dec 26, 2014 9:50 am

At the initiation of finance lease term we will make entries as Debt=4000, asset=4000. Now, we will make adjustment of interest and depreciation to keep assets and liabilities equal.
For example:- we paid 1000 as a lease payment in which we have paid some interest and depreciation.

Hope it is clear.

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