My client was depreciating a truck that was returned before the end of the lease. They then leased a new truck with a lower value. My question is do I enter a disposal value amount equal to the bv of the old truck and set up a new asset on the new truck?
If your client was leasing truck it should not have depreciated in the first place.
This assumes it was not considered a lease purchase.i.e. bargain price
to purchase at end of lease.
My lease did qualify as a capital lease because there was a bargain purchase option. I am confused on how to set up the new asset and dispose of the old. I originally disposed of the old asset at its bv so as not to report a gain. I then figured out the fmv of the new leased asset based on the interest rate and payment terms so I could depreciate as well as include the interest expense. I am just a little worried about the old asset being disposed of at zero since they did use an accelerated depreciation.
Any advice would be greatly appreciated!
Capital lease would require depreciation. List sales price as trade in value of old truck. New truck would enter depreciation as lease payments due on it if it is also considered a capital lease.
