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CMA Intermediate · Financial Accounting · Lease Accounting

According to AS 19, at what point is the classification of a lease as finance or operating made?

Lease classification is made at the inception of the lease. It is not reassessed each year or at the end of the term. It changes only if the parties agree revised terms that would have produced a different classification at inception.

  1. AAt the inception of the leaseCorrect
  2. BAt the end of each accounting period
  3. CAt the date of the final lease payment
  4. DAt the date the lessee first uses the asset

Explanation

AS 19 states that lease classification is made at the inception of the lease. It is revisited only if the lessee and lessor agree to change the provisions in a manner that would have changed the classification, in which case the revised agreement is treated as a new agreement over its revised term.

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