Problem - I have the following lease 20 years, variable payments first year $5,644,000 it will increase every year at 2.50%, FMV at the beginning of the lease $91,061,451.
It is a capital lease. We will amortized at 6% and depreciate the NPV over 28 years the life of the asset. I hope you know the entries to record this lease
At the end of year 14 The Unamortized balance is $41,574,331 and the Net Book Value is $39,433,148.
We decide to purchase the building at the Beginning of year 15 at FMV for $97,300,000.
Questions
1) What happens with the Net book value of the lease?
2) What happens to the Un-amortized balance?
3) What life should we use to depreciate the purchased asset?