1.

Explain the difference between Finance Lease and Operating Lease

Finance lease and operating lease are two types of lease agreements that
businesses use to acquire assets without buying them outright. The main difference
between the two types of leases is the ownership of the leased asset at the end of
the lease term. A finance lease is a type of lease agreement in which the lessee (the
business or individual leasing the asset) is required to take on most of the risks and
rewards associated with owning the asset during the lease term. At the end of the
lease term, the lessee typically has the option to purchase the asset for a nominal
amount or to return it to the lessor (the owner of the asset). In a finance lease, the
lessee is typically responsible for all maintenance and repair costs associated with
the asset during the lease term. An operating lease, on the other hand, is a type of
lease agreement in which the lessor (the owner of the asset) retains most of the risks
and rewards associated with owning the asset during the lease term. At the end of
the lease term, the lessee typically has the option to renew the lease, return the
asset to the lessor, or purchase the asset at fair market value. In an operating lease,
the lessor is typically responsible for all maintenance and repair costs associated
with the asset during the lease term.
In summary, the main difference between a finance lease and an operating lease
is the ownership of the leased asset at the end of the lease term, as well as the
allocation of risks and rewards between the lessor and the lessee during the lease
term.
2. When do we recognize liabilities in government entity?
Government entities recognize liabilities in accordance with the Governmental
Accounting Standards Board (GASB) accounting principles. Liabilities are
recognized when there is a present obligation to pay a specific amount of money,
goods, or services as a result of a past transaction or event. The recognition of
liabilities by government entities is governed by the following general principles: The
liability must represent a present obligation: A present obligation is a legal or
constructive obligation that arises from past events and requires the government
entity to make a future payment or to provide goods or services. The amount of the
liability must be measurable: The amount of the liability must be estimated with
reasonable accuracy. The liability should be recorded at the present value of the
future payments or other considerations that will be required to settle the obligation.
The liability must be probable: The likelihood of the government entity having to
make a payment or provide goods or services to settle the obligation must be more
likely than not. The liability must be capable of being reliably measured: The amount
of the liability must be capable of being reliably measured, and the timing of the
obligation must be reasonably certain. Examples of liabilities that government
entities may recognize include accounts payable, notes payable, bonds payable,
pension liabilities, and compensated absences liabilities. It is important for
government entities to accurately recognize and report their liabilities as it affects
their financial statements, budgeting, and decision-making processes.