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HI.
There is a test your understanding question in kaplan study text in which lease payment is removed from the cost of sales and i dont understand it . I thought we only charge depreciation of the leased assed to cost of sales then why are we “REMOVING” the lease payment amount from COS ?. Sir can you please explain to me the situations in which we do this .
Waiting for your reply .thanks …Probably because the lease payment is maybe an incorrectly allocated amount which has wrongly been included in cost of sales.
It could also be ( I don’t have the question, so I’m guessing! ) that the lease is a finance lease, the instalment has been included in cost of sales and in fact should have been treated as ….interest as a finance cost and capital element as a deduction from the obligation to the finance lessor
IF it’s an operating lease, the payment to the lessor is correctly treated as an expense in full, but is not appropriately included in cost of sales – finance / leasing costs within the body of the Statement of Income
Does that do it?
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