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CMA Intermediate · Financial Accounting · Lease Accounting

Under AS 19 Leases, which description best fits a 'lease'?

A lease is an agreement where the lessor gives the lessee the right to use an asset for an agreed period in return for a payment or series of payments. Ownership transfer is not essential to the definition, which separates leases from loans and credit sales.

  1. AAn agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of timeCorrect
  2. BAn agreement under which ownership of an asset must pass to the buyer after the last instalment is paid
  3. CAn agreement under which a bank lends money to a business against security of its fixed assets
  4. DAn agreement under which one party sells goods to another on credit for an indefinite period

Explanation

AS 19 defines a lease as an agreement in which the lessor gives the lessee the right to use an asset for an agreed period in return for a payment or series of payments. Transfer of ownership is not part of the definition. A loan against security or a credit sale does not convey a right to use for an agreed period.

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