Question

1. How should the acquisition of general fixed assets acquired by capital leases be accounted for?

Answer 1

ANSWER=

General fixed assets acquired by capital lease-

Are the agreements that would be accounted for in the government-wide financial statements, as would the long-term liability.

Also When a capital lease agreement is signed, a governmental fund would record an expenditure and an other financing source: the amount being the present value of the payments under the lease agreement or the fair value of the asset, whichever is the lesser.

As capital lease payments are made, a governmental fund, often a debt service fund, would record expenditures for interest and principal. The expenditure for interest eachyear would be equal to the effective interest rate multiplied by the balance of the capital lease liability.

The expenditure for principal would be the difference between the total expenditure and the expenditure for interest. It should be noted that capital leases, including the acquisition and the equipment, acquired through proprietary funds, would be recorded directly in the proprietary funds.

In some cases, the entries to record the asset acquisition as well as periodic payments of capital leases realating to general fixed assets would be accounted for in the general fund.