Accounting / July 19, 2018 / Sharon Hardin
Probability distribution. When calculating the expected present value of an ARO, and there are only two possible outcomes, assign a 50 percent probability to each one until you have additional information that alters the initial probability distribution. Otherwise, spread the probability across the full set of possible scenarios.
Capital lease The present value of all lease payments is considered to be the cost of the asset, which is recorded as a fixed asset, with an offsetting credit to a capital lease liability account. As each monthly lease payment is made to the lessor, the lessee records a combined reduction in the capital lease liability account and a charge to interest expense. The lessee also records a periodic depreciation charge to gradually reduce the carrying amount of the fixed asset in its accounting records.
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