If a current asset is turned into a Finance Lease, is it correct to fully disposal of the current asset and then set it us as ROU and amortize over the life of the ROU?
You are asking about a lease involving a current asset. Current assets are things like cash, accounts receivable, prepaid expenses and so on. It would be extremely unlikely to involve such things in a lease. Do you mean a lease involving a fixed asset?
It was our fixed asset and is now a finance lease - a finance lease, also referred to as a capital lease or sales lease, is a type of commercial lease in which a finance company is the legal owner of an asset, and the user rents the asset for an agreed-upon period of time.
Then it shouldn't be listed as an asset at all.
The asset and corresponding accumulated depreciation should be reversed out and net difference should be charged to some
profit/loss account.
The payments to the finance company are now expensed as paid.
The above first needs a discussion of applying the five criteria to determine if this qualifies as a finance lease or an operating lease. For either one, an asset will be set up on the lessee’s books.
Then it shouldn't be listed as an asset at all.
The asset and corresponding accumulated depreciation should be reversed out and net difference should be charged to some
profit/loss account.
The payments to the finance company are now expensed as paid.
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