CMA Intermediate · Financial Accounting · Lease Accounting
Which of the following, by itself, is cited in AS 19 as a situation that would normally lead to a lease being classified as a finance lease?
A purchase option priced sufficiently below expected fair value, making exercise reasonably certain at inception, normally indicates a finance lease under AS 19. Who the lessor is, how often rent is paid, or whether the lease is registered does not determine classification.
- AThe lessee has an option to purchase at a price expected to be sufficiently lower than fair value so that exercise is reasonably certain at inceptionCorrect
- BThe lessor is a financial institution
- CThe rentals are payable monthly
- DThe lease agreement is registered with the authorities
Explanation
AS 19 lists a purchase option at a price expected to be sufficiently lower than fair value that exercise is reasonably certain at inception. The identity of the lessor, rental frequency and registration are not classification indicators.
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