CMA Intermediate · Financial Accounting · Lease Accounting
Under AS 19 Leases, a lease is classified as a finance lease when it
A lease is a finance lease if it transfers substantially all the risks and rewards incident to ownership to the lessee. Title may or may not eventually be transferred, so legal ownership is not essential. Substance, not form or lease length, drives the classification.
- Ais for a period longer than one year
- Btransfers substantially all the risks and rewards incident to ownership, whether or not title is eventually transferredCorrect
- Calways transfers legal title to the lessee at the end of the term
- Drequires the lessee to pay rentals in advance
Explanation
AS 19 bases classification on whether substantially all risks and rewards incident to ownership are transferred. Title may or may not eventually pass. Lease duration alone, legal title or timing of rentals does not decide it, so the other options are wrong.
Did you get it right without looking?
One question tells you little. A timed set on Lease Accounting shows your real accuracy, how long you take and where you lose marks.
More Lease Accounting questions
- A lessor gives an asset under a finance lease. How should the lessor show this asset in its balance sheet under AS 19 Leases?
- Sundaram Textiles Ltd takes machinery on a finance lease recognised at ₹12,00,000. The lease term is 4 years, the useful life is 6 years, re…
- Kaveri Logistics leased a vehicle from a finance company, and the lease was classified as a finance lease at inception. In the second year, …
- Sundaram Leasing Ltd. gave equipment on finance lease. The net investment at the start of the lease was Rs 2,00,000 and the rate implicit in…
- Under AS 19, which item is excluded from the minimum lease payments of a lessee?
- At inception, Ganga Tools Ltd. leased equipment classified as an operating lease. Two years later, the lessee defaulted on payments and the …