Asked Jan 25, 2020

Explain the accounting for finance leases. 


Expert Answer

Step 1

A lessee should categorize a lease as a finance lease when any of the following criteria are met:


  • Ownership of the underlying asset is shifted to the lessee by the end of the lease term.
  • The lessee has a purchase option to buy the leased asset, and is reasonably certain to use it.
  • The lease term covers the major part of the underlying asset’s remaining economic life. This i...

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