Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease include:
A)if the lessee can cancel the lease,the lessor's losses associated with the cancellation are borne by the lessee
B)gains or losses from the fluctuation in the fair value of the residual accrue to the lessee
C)the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent
D)all of the above

Question

Quizplus · Accepted Answer

All of the options listed are indicators that a lease may be classified as a finance lease.

A) If the lessee has the ability to cancel the lease, but the lessor would suffer losses as a result, it suggests that the lessee has some level of control over the use of the asset and is effectively taking on the risks and rewards of ownership.

B) If gains or losses from the residual value of the asset transfer to the lessee, it suggests that the lessee is effectively taking on the risks and rewards of ownership.

C) If the lessee has the option to continue the lease for less than market rent, it suggests that the lessee is effectively committed to using the asset for a longer period of time and has taken on some of the risks associated with ownership.

Indicators of Situations That Individually or in Combination Could Also