An example of legal form not reflecting economic substance is:
A) a legal document describing an accounts receivable as a debtor
B) a legal document describing a loan as an advance
C) a legal document describing a transaction as a lease when in fact it is a credit sale
D) all are examples of legal form not reflecting economic substance

Question

Quizplus · Accepted Answer

Describing a transaction as a lease when it is actually a credit sale means that the legal form reflects a lease agreement but the economic substance is a sale. This can lead to misleading financial statements as lease payments are treated differently than credit sales in accounting. A loan described as an advance may also not reflect economic substance, but this would depend on the specific details of the transaction. Option A is not an example of legal form not reflecting economic substance as accounts receivable and debtors are synonymous terms. Option D is incorrect as not all legal documents that do not reflect economic substance fall under the examples listed.

An Example of Legal Form Not Reflecting Economic Substance Is