In a lease that is appropriately recorded as a direct financing lease (ASPE) or finance lease (IFRS) by the lessor, the unearned interest income is
A) amortized and taken into income over the lease term using the effective interest method.
B) amortized and taken into income over the lease term using the straight-line method.
C) taken into income at the inception of the lease.
D) taken into income at the end of the lease.

Question

Quizplus · Accepted Answer

In a direct financing lease (ASPE) or finance lease (IFRS), unearned interest income is recognized as revenue over the lease term using the effective interest method. This method results in a constant periodic rate of return on the net investment in the lease. Therefore, Choice A, amortizing and taking into income over the lease term using the effective interest method, is the correct choice.

In a Lease That Is Appropriately Recorded as a Direct