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Lease term and depreciation

This topic has 1 reply, 2 voices, and was last updated 5 years ago by P2-D2.

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April 7, 2020 at 2:06 am #566695
ellekurowa
Member
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For lessees, if they can rent the asset for 3 years and they can continue to lease the asset for a nominal $1 rent per year indefinitely after that and the lessee plans to use the asset for 4 years, then does the right of use asset be depreciated by 3 or 4 years in the lessee books?
April 8, 2020 at 8:08 pm #566879
P2-D2
Keymaster
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Hi,
It is depreciated over the shorter of the lease term and useful life. Here the lease term is indefinite as they would take up the $1 rental option, and the useful life is 4 years. Therefore it is depreciated over the 4 years.
Thanks
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