Final answer:
The cost of an asset under a capital lease is the present value of the minimum lease payments. This includes both the periodic payments and any un-guaranteed residual value. The cost reflects all present and future financial responsibilities associated with the lease.
Step-by-step explanation:
The amount to be recorded as the cost of an asset under a capital lease is equal to the present value of the minimum lease payments. This value is calculated by discounting the future lease payments back to their present value using the interest rate specified in the lease agreement. The cost includes the present value of both the periodic lease payments and any un-guaranteed residual value that the lessee is responsible for at the end of the lease term.
When considering the cost of capital investments, it's important to account for all present costs as well as the present discounted value of future benefits. This process ensures that the decision to lease or purchase an asset is based on a complete understanding of all the financial implications.