What does the current portion of capital lease obligation represent?

What does the current portion of capital lease obligation represent?

• A. The amount owing over the next 12 months for capital lease payments
• B. The total lease obligation
• C. Depreciation expense for leased assets
• D. Future minimum lease payments beyond 12 months

Answer: (A)

The current portion of a capital (finance) lease obligation is the amount of the lease liability that must be paid within the next 12 months. It represents the near-term principal payments due on the lease and is shown as a current liability on the balance sheet. The remainder of the lease obligation, due after one year, is classified as noncurrent (long-term) liability. This differs from depreciation expense for the leased asset, which is an expense recognized over the asset’s life, and from the total lease obligation, which would combine both the current and long-term portions. It also isn’t the amount of future minimum lease payments beyond 12 months, which is the portion due after the next year.

The current portion of a capital (finance) lease obligation is the amount of the lease liability that must be paid within the next 12 months. It represents the near-term principal payments due on the lease and is shown as a current liability on the balance sheet. The remainder of the lease obligation, due after one year, is classified as noncurrent (long-term) liability. This differs from depreciation expense for the leased asset, which is an expense recognized over the asset’s life, and from the total lease obligation, which would combine both the current and long-term portions. It also isn’t the amount of future minimum lease payments beyond 12 months, which is the portion due after the next year.