Question

In computing amortization of a leased asset where there is no bargain purchase option, the lessee should subtract

A. no residual value and depreciate over the term of the lease

B. an unguaranteed residual value and depreciate over the term of the lease

C. a guaranteed residual value and depreciate over the life of the asset

D. an unguaranteed residual value and depreciate over the life of the asset

Answer 1

A. No residual value and depreciate over the term of the lease.

Explanation: Since, there is no bargain purchase option in the leased asset, the lease should be classified as an Operating Lease and the lease payments should be considered as operating expenses without any residual value.

Answer 2

Answer:

D. an unguaranteed residual value and depreciate over the life of the asset

Explanation:

Under U.S. GAAP (ASC 842) and IFRS 16, when a lease has no bargain purchase option:

1. Amortization Base: The lessee subtracts the unguaranteed residual value from the leased asset's cost to compute amortization.

2. 
   

3. Depreciation Period:

• If ownership transfers or there is a bargain purchase option → depreciate over the asset's useful life.

• 
  

• No transfer of ownership/no bargain purchase option → depreciate over the shorter of the lease term or useful life.