Which of the following is not a condition under which the lessee must record the lease...

Which of the following is not a condition under which the lessee must record the lease as finance lease?

The lease term is equal to 60% of the economic life of the lease property.

The present value of the lease payments is 90% of the fair value of the property.

The lease contains a bargain purchase option.

The lease transfers ownership of the property to the lessee.

Solutions

Expert Solution

Answer is first option- The lease term is equal to 60% of the economic life of the lease property

A lease can be classified as finance lease on meeting the recognition criteria. Lease to be classified as finance lease should be equal to 75% of the economic life of the lease property. If this condition is not met it is classified as operating lease. The lease term is calculated dividing lease period by total economic life of the lease property. Rest of the 3 conditions are part of recognition criteria for finance lease.

ekkarill92 answered 1 year ago

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