Final answer:
A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the life of the asset or the term of the lease, whichever is shorter.
Step-by-step explanation:
When a lessee has a capital lease with a bargain purchase option, they should depreciate the leased asset over the life of the asset or the term of the lease, whichever is shorter. This means that the lessee will calculate depreciation based on either the remaining economic life of the asset or the term of the lease, and choose the shorter of the two.
For example, if the leased asset has a remaining economic life of 10 years, but the lease agreement is only for 8 years, the lessee will depreciate the asset over 8 years. On the other hand, if the remaining economic life of the asset is 8 years but the lease agreement is for 10 years, the lessee will still depreciate the asset over 8 years.