Answers
First, we need to understand the difference between operating lease and capital lease.
Operating lease is where the ownership of the asset is retained by the lessor whereas in case of capital lease the ownership of the asset might be transferred to the lessee at the end of lease term.
Capital lease is treated as debt. In case of capital lease, the assets needs to be recognized and claim depreciation and interest on lease amount. At the same time, the debt also needs to be recognizes as a liability for the outstanding lease payment installment.
In case of operating lease, as the ownership is not transferred, so only periodic lease payment is considered as an expense
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