Under operating leases, who bears depreciation on the leased asset on the lessor’s books?

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Prepare for the CLFP Financial and Tax Accounting for Leases Exam. Utilize engaging flashcards, multiple choice questions with hints and detailed explanations to enhance your study experience. Align your knowledge for exam success!

Multiple Choice

Under operating leases, who bears depreciation on the leased asset on the lessor’s books?

Explanation:
Ownership of the asset remains with the lessor in an operating lease, so the asset stays on the lessor’s balance sheet and the lessor records depreciation. The lessee simply uses the asset and pays rent, recognizing lease expense over the lease term rather than depreciating the asset on the lessor’s books. This means the depreciation burden on the leased asset is borne by the lessor.

Ownership of the asset remains with the lessor in an operating lease, so the asset stays on the lessor’s balance sheet and the lessor records depreciation. The lessee simply uses the asset and pays rent, recognizing lease expense over the lease term rather than depreciating the asset on the lessor’s books. This means the depreciation burden on the leased asset is borne by the lessor.

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