Asked Jan 25, 2020

Identify the lease classifications for lessors and the criteria that must be met for each classification. What is the relevance of revenue recognition criteria for lessor accounting for leases?


Expert Answer

Step 1

Lease: A contractual agreement for an asset between two parties. The parties involved are lessee and lessor. Lessor in lease is the owner of leased asset and lessee is a tenant who takes the asset on lease for a lease payment per period.

Step 2

Lease classifications for lessor:


Lease are classified as - Finance lease

- Operating lease


Standard conditions for leases:


- Transfer of ownership of lease property to the lessee.

- Lease term should be equal to 75% or more for estimated economic life of leased asset.

- Present value of lease payments should equal or more than 90% of fair value of lease property

- Lease agreement containing a bargain purchase option.


A lease should satisfy certain conditions for qualifying to be a finance lease. If a lease satisfies any three of the above conditions. Then such lease is classified as finance lease. If a lease...

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