Question

When depreciable asset is leased under an operating lease, the lessor:

a. records depreciation in the normal manner
b. defers depreciation until the lease expires
c. must use activity based depreciation
d. never recognized depreciation

Answer 1

When an asset is under an operating lease, the lessor continues to record depreciation in the normal manner, as they retain ownership and must account for it on their balance sheet.

Step-by-step explanation:

When a depreciable asset is leased under an operating lease, the lessor records depreciation in the normal manner. The lessor retains ownership of the asset and must continue to account for it as an asset on their balance sheet, which includes recording depreciation expense over the asset's useful life, in accordance with the matching principle of accounting. This means that the depreciation method used could vary depending on the nature of the asset and the lessor's accounting policies, but regardless of the lease classification, the lessor does not defer the recognition of depreciation nor do they avoid it altogether.