How does a company report a finance lease on its balance sheet according to the chapter on Non-Current Liabilities?

A company reports a finance lease on its balance sheet by recording both the leased asset and the corresponding lease payable. The amount reported is the lower of the present value of future lease payments and the fair value of the leased asset.

When a company enters into a finance lease, it treats the lease similarly to a purchase of an asset. It recognizes an asset for the leased item and a liability for the lease payable. The recorded amounts are determined by comparing the present value of future lease payments to the fair value of the asset, and the lower amount is reported on the balance sheet.