Finance Lease question?

Posted on 2014-04-16 08:22:00 in Finance by JOHN

I'm asking this question again because I got silly answers the last time...



Why are the deferred interest payments under a finance lease categorised under assets?

I understand the entries below, but I want to know why its taken up under assets... Cheers





The entry is usually :



Dr Fixed Asset

Dr Deferred Interest (all future interest amounts)



Cr Loan Liability (total amount of principal as well as all future interest)





Then when interest is incurred the entry is :



Dr Interest expense

Cr Deferred Interest



When a payment is made, we pass the following entry (because each payment is for a portion of the principal and the interest)



Dr Loan Liability

Cr Cash

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